Why? Well, lets first talk about what title insurance is.
Title insurance is a form of indemnity insurance which insures against financial loss from defects in title to real property and from the invalidity or inability to enforce mortgage loans.
Simply stated... the title to a piece of property is the evidence that the owner is in lawful possession of that property. Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property, despite the most thorough review of public records done prior to closing.
Is it like car insurance?
Yes and no. While they both protect against the unexpected, insurance such as car, life, health, etc., protects against potential FUTURE events, paid for with a monthly or annual premium.
Title insurance policies insure against events that occurred in the PAST for the real estate property and previous owners. This is paid in the form of a one-time premium at the “close of the escrow”, also known as the “closing” or “date of consummation”.
So, what's a defect?
A deed or mortgage in the chain of title may contain forgery.
A deed or a mortgage in the chain may have been signed by a person under age.
A deed or a mortgage may have been made by an insane person or someone otherwise incompetent.
A deed or a mortgage may have been made by a person other than the owner, but with the same name as the owner.
The testator of a will might have had a child born after the execution of the will, a fact that would entitle the child to claim his or her share of the property- probate issues.
A testator may have had children he/she did not acknowledge, still possibly making them an heir.
A deed or mortgage may have been procured by fraud or duress.
Title insurance covers attorneys’ fees and court costs should a covered issue occur.
A deed or mortgage may be voidable because it was signed while the grantor was in bankruptcy.
Low, one-time fee provides peace of mind. Your lender requires it for them, why wouldn’t you want the same protections?
We do everything we can to avoid these type of events. Our attorneys research over 40 years of county records to make sure that the chain of ownership is correct, complete, and that the property has no liens, judgments, or lawsuits pending against it. But things happen and is a low, one-time fee that provides peace of mind. The lender requires it for them, why wouldn’t you as a buyer want the same protections?