T is for Title/Title Insurance

In First-Time Buyers by Doug Phelps

If you are considering buying a new home, it’s important to understand what the title is and also why you need title insurance. Here’s everything you need to know about that process.

What is a title?

A title is the legal documentation that outlines specific details about the property you are purchasing, as well as who owns it. This often comes in the form of a deed. When you buy a property, you will receive the deed, which proves you own it. The deed, then, the official document that says you have title to the property.

Another way of looking at it is that the title is the legal way of saying you have ownership of the property. 

What is title insurance?

Simply put, title insurance protects property buyers and mortgage lenders against potential problems with a title when property ownership is transferred.

There are two parts to the title insurance process. First, the title company will research records related to the property to make sure there are no undisclosed heirs, unpaid taxes, pending legal action, errors, fraud or other problems with the deed. Basically, the title company will ensure that the seller really does own the property and is free to sell it.

Next, the title company will issue an insurance policy that will cover your defense should anyone challenge your title, as well as compensate you for loss of equity.

As a homebuyer, you will usually need both an owner’s policy and a lender’s policy. Both a lender’s policy and an owner’s policy are often required together. The parties purchase title insurance for a one-time fee at closing.

It’s important to note that almost all lenders require a lender’s title insurance policy. Owner’s title insurance, often purchased by the seller to protect the buyer, is optional but highly recommended.

Do I really need title insurance?

Title insurance is extremely important. Consider you found your dream house only to discover, after closing, unpaid property taxes from the prior owner. Without title insurance, this claim for back taxes is your responsibility. Title insurance protects the buyer for as long as you own or have interest in the property.

Your real estate agent can help you navigate the title insurance process and pick a title company.