Why You Need Title Insurance

Real estate property is the nation's largest asset, and over the last 15 years, this country experienced one of the best periods in history for the housing market. The professionals in the public arena that deal with consumers for real estate transactions are realtors, lawyers and mortgage bankers. However, just as important, but operating behind-the-scenes are the title companies, ensuring the quick and secure transfer of land while buidling lender and consumer confidence in their real estate investments.

The objective of title insurance is the same as it was in 1876, when the first title insurance company was founded, helping the parties in real estate transactions to determine their rights and interests, and assuring that land transfer is expeditious and secure. Protecting the parties involved in real estate transactions is the reason the title insurance product was developed.

In this country, matters affecting ownership and other real estate interests are entered in public records. Before a transaction is completed, a title search of the records is made in an effort to locate potential problems so that they can be rectified and the transfer can proceed. While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal. Examples include forgeries in the chain of title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. Liens, easements, rights-of-way, life estates, air and subsurface rights, and future interests are also found in a title search.

Title insurance is substantially different than other types of insurance coverage, which can often lead to a misunderstanding of the product. Title insurance emphasizes risk prevention rather than risk assumption. This emphasis on risk prevention is a labor intensive and costly component of doing business, but the coverage offers the best possible opportunity for avoiding claims and losses in real estate transactions.

During the title search, title companies find and fix problems with the title in 25 percent of transactions, usually unbeknownst to the consumer or lender. In addition, title companies pay millions of dollars each year in claims.

When a property is resold quickly, or refinanced within a short period of time from the original purchase or most recent refinance, a new title search and title policy are needed. The owner/seller may have created or experienced claims, liens or other encumbrances since the original policy was issued, and the lender will require a new title search to ensure that the title is clear. For instance, the owner may have taken out a second mortgage, incurred a mechanic's lien or a lien from unpaid taxes.

Source: ALTA.org

What We're Tweeting