Title insurance is defined by Investopedia as a type of insurance covering a party’s loss of interest in real property due to unforeseeable legal circumstances. For the most part, people are familiar with title insurance that is paid for by the borrower but protect the lending institution. Owner’s title insurance protects the owner of the property in question. However, people have very little idea of what kind of legal challenges to title can occur and believe they are covered simply because it title search has taken place. The key term here is “unforeseeable” and covers a number of different circumstances such as:
- Clerical errors
- Deed omissions
- Fraud or forgery involving the deed, including people who did not have any right to sell the property, or who forged the deed to the home and presented themselves as lawful sellers.
- Unrecorded liens such as contractors or mechanic’s liens, tax liens, or liens resulting from civil judgments.
- Examiner’s mistakes occur when the individual doing the title search overlooks a critical document.
- Errors in foreclosure procedure are possible considering the boom in foreclosures that took place during and after the recession. Many banks failed to undertake due diligence, took shortcuts and paperwork, made use of robosigners, dual tracking, and generally bulldozed those who were not in default into foreclosure. Should you buy a formerly foreclosed property, you may be in danger of discovering the previous owners were improperly foreclosed.
- Unrecorded heirs or spouses
- Any other type of unlawful sale or transfer, such as a person who was non compos mentis being induced to sell the house through coercion or fraud.
The ultimate goal of these policies is to protect the owner and the lender from the possibility that despite a title search the seller did not have free and clear title to the house and property, and therefore cannot lawfully transfer the property to anyone else.
So where do you get title insurance? From a title insurance company, generally as a one-time payment that is based on the purchase price and the type of title insurance that you buy. As with all insurance, some policies cover much more than others. Talk with the title insurance agent before your closing to make sure that your interests are represented, and your investment is protected. You might never have a claim, or a claim can arise a few months or a few years after you have purchased the house.
Yes, claims like this are a long shot. Nobody is saying that they happen all the time. In point of fact, they are exceedingly rare. However, earthquakes are rare too – but they still happen. Hurricanes have not given us a sideways glance in over a decade, but you still buy hurricane insurance. Even if your property is not in a high-risk flood zone, you are still required to carry flood insurance. Title insurance is like any other insurance; it insures you against the unthinkable possibility that something could go horribly, terribly wrong.