What Is Title Insurance and Why Do I Need It?
If you are in the process of buying a home, one of the expenses you will want to plan for is title insurance. Many buyers, especially those buying their first home, ask us “What is title insurance and why do I need it”? This is a very confusing issue while also being a very important one. Let’s see if we can explain -
The basic answer is that it will insure you against the title to the home you’re buying being defective. In other words, if the status of the title is found to be other than it was represented, and you suffer a loss as a result of this defect, the insuring company will reimburse you for your loss (including legal fees if required) up to the face value of the policy.
Still a little confused? Don’t worry, most are at this point. So let’s dig a little deeper. When you enter into a contract to purchase a home or land, you or your agent are going to provide a copy of the contract to the closing entity. Depending on where you are buying, this will either be an attorney or a title insurance company. We practice real estate in North Carolina and Georgia where both states use an attorney to close. The attorney is going to do a search of the public records for any transactions that relate to this property. They will also check for issues relating to any of the parties to those transactions. The search could go back for 30-50 years and will include any sales transactions, mortgages, liens or other encumbrances. They will check to make sure the interest of anyone who ever owned the property was transferred appropriately, that estates were settled properly, that marital/spousal rights were either conveyed or relinquished properly. They will also check to make sure all property taxes have been paid.
If the attorney finds any issues they will notify you or your agent and then seek to get the issue corrected. Sometimes these issues can be fixed and sometimes they can’t. Sometimes the closing will be delayed for a short period of time while the defect is taken care of. One that we frequently see is where a former property owner passes awayand not all of the heirs (and their spouses if necessary) convey their potential interest in the property.
You will pay for a title insurance exam (the search described above) and the title insurance. This is a one time premium and covers you as long as you own the home. It doesn’t matter if the defect was overlooked by the attorney or if it isn’t found for years and years, you are still covered!
You should always look at the “Exceptions” page to see what items are not covered. These will normally include current taxes not yet due and payable, easements that are currently existing and, if there is not a current survey on the property, items that might be disclosed by a new survey. If you’re unsure of anything ASK the attorney for clarification. He/She will be more than happy to explain it to you.
In short, ALWAYS, ALWAYS, ALWAYS get title insurance! The peace of mind is worth it.
Bill and Cyndi
Thank you to our client, Andrew L. for submitting this question during a recent poll.