“You understand the benefit of car insurance and homeowners insurance, but chances are you’ve never thought about title insurance until you started the process of buying a house. What is title insurance? It’s a policy that insures that you won’t have any unknown claims made to the ownership of your home.”
“What could go wrong?
A clean or clear title is important because the title is what gives you ownership of a property. Imagine buying your dream home, closing the deal and then realizing the previous owner hadn’t paid property taxes for several years. Those taxes remain charged against the property and as the new owner, you are responsible. The taxing entity could even take your home. Or perhaps two sales ago someone sold the home without getting the signature of an estranged husband who now wants to stake his claim. Perhaps the previous owner didn’t pay a contractor for some work on the home and the company put a lien against the house. Or the power company shows up with a crew to take advantage of an easement though your new backyard. The scenarios are seemingly endless and tracking down every last possibility is more than you can practically do on your own. That’s where title insurance comes in. An ounce of prevention.
Title insurance doesn’t work the same way most other policies do. The truth is that title insurers rarely have to pay out on claims. But that doesn’t mean you’re paying them for nothing. To the contrary, unlike other types of insurance, title insurance companies mostly incur their expenses upfront and help prevent any kind of title surprise later on. Who would guess that title companies search in order to reduce the chance of a title insurance claim to near zero?
While you are in the escrow phase of your purchase, the title insurance company will conduct a comprehensive search to make sure there are no such surprises lurking in the dusty files in some forgotten corner of the county courthouse. The title company searcher looks at deeds, wills, and trusts, tracing the history of the property back many, many years. Among the important questions is whether all past mortgages and liens have been paid. Does anyone hold an easement? Are there any pending legal actions? That’s where most of your insurance premium goes – to conducting that search. Then, just to make sure you’re protected in case they missed something, title insurance will cover your losses if it turns out later that they missed something.”