On the long list of things on your mind when buying a home, title insurance probably falls near the bottom — if it makes an appearance at all. However, buyers should be aware that title insurance could end up being one of the most important aspects of a home. Without it, you could potentially end up in a costly legal battle with no end in sight.
What is Title Insurance?
When you purchase a home, you are “taking title” of the property, which establishes legal ownership. The title defines in legal terms your rights as the property owner, including boundaries and use.
Title insurance is a policy that pays out in the event that there is a dispute or defect with your title. There are many reasons that a title could be disputed. Some may even seem trivial, but even the most inane problem could have enormous legal consequences down the road.
With title insurance, you are protected from the financial burden of legally contesting any disputes. All of your expenses created as a result of defending your right to title will be covered to the extent of your policy payout.
Why Would Someone Cause a Dispute?
The most common reason is a legal grey area in the language of the title. Property boundaries could be disputed, as could legitimate ownership of the title. Even a small typo could send your ownership into question.
Often times in situations where the property was inherited another heir could step forward and make the claim that they were in fact intended to be the beneficiary of the property. No matter how baseless this claim is, the courts have to take it seriously.
You must then mount a defense against their case. Sometimes the cases can take years to work themselves out in court, causing legal costs to skyrocket. Title insurance prepares you for this danger, with a policy that covers all expenses.
Lender Insurance vs. Owner Insurance
If you use a lender to finance your home, chances are they will make you perform a title search and purchase title insurance during the closing process. Keep in mind that this policy only protects them in the event of a dispute, and not you.
Should they lose the legal battle or exhaust their policy payout, then it becomes your responsibility to defend your own title. While this scenario may be rare, it is not unheard of.
Furthermore, title insurance only costs a one-time premium instead of the typical monthly rate. A simple purchase can protect your property for the duration of ownership, giving you peace of mind.
For more advice on purchasing homes and protecting your investment afterwards, take a look at our buying page.