What is Title Insurance?

When buying a home for the first, or even second, time, you know that many considerations will arise in addition to the usual concerns like the mortgage and closing fees. Purchasing insurance is now a factor, and depending on where you live may be faced with taking out policies for home, fire, and flood. However,…

When buying a home for the first, or even second, time, you know that many considerations will arise in addition to the usual concerns like the mortgage and closing fees. Purchasing insurance is now a factor, and depending on where you live may be faced with taking out policies for home, fire, and flood. However, few new home buyers may realize the need for another specific policy, particularly if the home they are buying is not new. Title insurance can prove valuable to the homeowner.

What is Title Insurance?

Simply defined, title insurance protects the homeowner against loss when issues tied to the property's title come into questions. The title is essentially the deed to the property, the legal document that transfers ownership of the home, land, and whatever else is specified therein from one person to another. In an ideal real estate transaction, the seller will sign the title over to the buyer. The document now proclaims that the buyer is now the owner of the property.

It should be a cut and dry process, but in certain situations the title of a property may come into dispute. For example, a home that had been owned over generations – sold to an outsider – may become the object of a legal battle should someone in the family claiming to be the rightful owner decide to challenge the title. Also, it may come to pass that a seller who has no authorization to transfer a title does so anyway – maybe through forgery – thereby committing a fraudulent transaction. The holder of the title may then have to face legal and financial problems that could result in losing the property.

What Title Insurance Does

With title insurance, any possibilities of problems arising from a real estate transaction are smoothed over to allow for a clean sale. Unlike other types of insurance which pay after something happens, title insurance works protects the policy holder from losses contained prior to the policy's release. Issues such as ownership disputes, unpaid taxes or liens are handled and cleared before the sale is final.

What Title Insurance Does Not Do

As mentioned earlier, title insurance differs from policies like car and fire insurance in that it does not cover losses the following after the sale. If someone were to put a lien on your home, the title insurance would not cover any losses since the event happened after the policy was taken out. The insurance only protects you from losses involving the property's previous owner. In turn, should you decide to sell your home, a prospective buyer may take out a policy to protect himself from any issues (ownership, taxes) you have had as a homeowner.

While title insurance is not required for the homeowner, it can be a good investment for those seeking to buy certain properties. When the you consider the possibilities, having title insurance may save you a few headaches as you purchase your new home.