What is Title Insurance and Why Is It Necessary?

Real estate buyers often feel as though they’re jumping through endless hoops before they finally make it to closing day. Most of these hoops pertain to stringent lending requirements or the complexities of the purchase agreement and all of the related forms and disclosures. At times, the series of required steps can feel pointless or unnecessary. But purchasing title insurance is generally a simple, yet very important, step in the process.

Before a real estate transaction is completed, a title search will be performed on the property. The buyer will be given the results of the search, called the “preliminary report,” to review during the purchase process. This report shows if anyone else has a claim to the property before ownership is transferred to the buyer. In most cases the property passes the title search, and no adverse claims are ever made after the transaction closes.

However, due to human error, a title search can fail to locate a problem with the title to the property. On occasion, problems arise after closing day due to forgeries, undisclosed heirs, mistakes in record examination, or errors on the deed to the property. The result of these mistakes can, for example, be a third party who claims an interest in the property. This can complicate matters for the new owner.. Issues with the new owner’s title could go undetected for years, perhaps even until the homeowner tries to sell the house to the next buyer or when the homeowner dies and the title is transferred to heirs.

That’s where title insurance comes into play. Purchased at closing for a one-time premium, this insurance insures the buyer’s title for the amount of the real estate purchase for as long as the buyers or their heirs have an interest in the property. If a claim on the property arises that was not listed on the title insurance policy, the title insurance policy will generally protect the buyer’s title to the home.

Title insurance may seem unnecessary or expensive, but it is strongly recommended for every purchase. If a problem surfaces with your home’s title, you’ll be very glad that you have title insurance.

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