Real Estate News

What is title insurance?

Published: 31 Aug 2017

There are many moving parts during the home sales process that can be difficult for many first-timers to navigate. However, striving to learn as much as possible about the process - and all the tertiary issues that come with it - is vital to getting through it successfully. With this in mind, it may be particularly important to learn a little bit about title insurance, what it does, and how it can be a big relief in certain cases.

A home's title is a document that states who the lawful owner of that property is, so having insurance around it is obviously a wise idea. Specifically, title insurance insulates both property owners and their mortgage lenders against certain types of risk stemming from issues like liens or "defects" - that is, documentary mistakes that might call the legality of the document into question, according to Stewart Title Guaranty Company. And the good news for new homebuyers is that unlike most other types of insurance they may be familiar with, there are no monthly premiums involved with title insurance, which is instead paid for as a one-time cost at the close of escrow.

Title insurance provides vital protection for homeowners and lenders.Title insurance provides vital protection for homeowners and lenders.

A closer look at defects and policies
Any number of issues could lead to what is considered a title defect, Stewart noted. This can include information on the document having been improperly recorded, but also fraud, forgery, and so on. Furthermore, in some cases another party may come forward to claim they actually own the property, and title insurance will cover this as well.

The good news for those who may not know much about title insurance is that in the end it's fairly straightforward, according to Bankrate. Prices are often regulated by state governments, meaning there won't be much need for shopping around to find the best deal since most policies will be in the same price range. Moreover, experts point out that there's not much variation between the various types of title insurance out there; unlike health insurance, for instance, there's not really a "best" kind of title insurance policy that costs significantly more than others.

Other issues
The party who's actually responsible for buying coverage changes from one state to the next, Bankrate added. Some require the homebuyer to purchase the coverage for both the buyer and lender, but others place that requirement on the seller. Some even split those onuses between the buyer and seller. Still, more allow for some negotiation on this point.

Finally, as for the cost of coverage, which many buyers or sellers may be curious about, experts say it typically runs purchasers about $1,000, according to NOLO. Generally speaking, it's also worth noting that most people can expect their real estate agent or attorney to find the right policies for their needs anyway.

Doing a little bit of research throughout the home sales process to learn all the ins and outs can go a long way toward reassuring buyers and sellers alike about the process. Likewise, title insurance can provide significant peace of mind for potentially years to come.