What Is Title Insurance? (And Why You Need It)

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Title insurance protects homeowners and mortgage lenders against any potential issues with the ownership of a property, including defects in the title, liens, or other encumbrances such as rights of way or easements.

There are two main types of title insurance – an owner’s policy and a lender’s policy. The owner’s policy protects the homeowner’s rights to the property and covers any legal fees associated with defending against a title dispute. A lender’s policy protects the lender’s investment in the property and covers the amount of the mortgage if a title dispute arises. Title insurance is usually required by the lender as a condition of providing a loan, but it can also be purchased by a homeowner without a mortgage to protect their own interests in the property.

How To Obtain Title Insurance

When a property is under contract for purchase, a title search is conducted to uncover any potential issues with the property’s title. This includes reviewing public records to ensure that the seller has the right to sell the property and that there are no outstanding liens or encumbrances on the property. If any issues are found, they must be resolved before the property can be sold.
Title disputes can arise for a variety of reasons, such as mechanics liens, errors in the public records, undisclosed heirs, or forged documents. To avoid these types of issues, a title company will conduct a thorough search of the property’s title history and issue a title report that lists any potential issues that may need to be resolved before the sale can be completed.

Potential Issues That Could Affect Title

There are several common title insurance problems that can arise during the home buying process:

• Errors in public records: Mistakes in the public records, such as incorrect property descriptions or incorrect information about the property’s ownership history, can lead to title disputes.
• Undisclosed heirs: If a property owner dies without a will, it may not be clear who the rightful heirs to the property are. This can lead to disputes over ownership of the property.
• Forged documents: If fraudulent documents are used to transfer ownership of a property, it can lead to a title dispute.
• Liens: If a property has outstanding liens, such as a mortgage or tax lien, it can complicate the process of transferring ownership.
• Boundary disputes: Disputes over property boundaries can arise if there is disagreement over the location of the property lines.
• Fraud: If a property is sold under false pretenses, it can lead to a title dispute.
• Unsatisfied mortgages or judgments: If a property owner has outstanding mortgages or judgments, it can complicate the transfer of ownership.
• Incorrect legal descriptions: Incorrect legal descriptions of a property can lead to disputes over ownership.

Title insurance does not protect against issues that may come up as a result of the homeowner’s actions, such as failure to pay property taxes or violation of zoning laws. It also does not cover the market value of the property or replacement cost for any improvements made to the property.

What If There Is A Problem After Closing?

If a title insurance problem arises after closing, the first step is to contact the title insurance company. The title company should be able to help you resolve the issue or provide guidance on how to proceed.

In some cases, the title company may be able to work with you to resolve the issue without the need for legal action. This may involve reviewing and correcting errors in the public records, negotiating with other parties involved in the dispute, or providing mediation services to help resolve the issue.
If the issue cannot be resolved through these means, it may be necessary to seek legal action. This could involve filing a lawsuit to resolve the dispute or seeking the help of a mediator or arbitrator to facilitate a resolution.

It’s important to note that the resolution process can be time-consuming and costly, so it’s best to work with the title company to try to resolve the issue as quickly and efficiently as possible. In some cases, the title insurance policy may cover the cost of legal fees associated with resolving the issue.

Peace Of Mind

In summary, title insurance is important for homeowners and lenders to ensure that the homeowner has clear ownership of the property and that there are no outstanding claims or liens on the property. It’s important to carefully review the terms of any title insurance policy to ensure that it provides the desired level of protection. Consult with a real estate professional to be sure you are covered.

About the Author
HI! I'm Brian Pfeffer. I grew up in Colorado Springs and I have been helping folks with their real estate needs since 2001.