You’re purchasing a home and you’re told you need to buy owner’s title insurance. If you’re like a lot of folks who are unfamiliar with what title insurance is, you may wonder if you really need it.
The short answer is a resounding yes. How important is having title insurance? If a problem with your title arises and you don’t have owner’s title insurance you could lose everything you’ve invested in your home or even face expensive legal fees.
The fact is even the best title search, performed by the most experienced and adept experts, can’t ensure that no title hazards exist. Some problems simply are not revealed in public records. Years ago, honest mistakes might have been made in determining the status of a title or even today, a previously unknown heir may come forward to claim ownership of a deceased relative’s property. To help protect you should this happen, you must have an owner’s title policy, which protects you against a majority of this type of unforeseen problem.
Real estate has a great value and is a basic form of wealth so a number of special laws have been enacted for its protection. Because of this, the land owner has strong rights, as does their family and heirs. However, others may also have “rights” to the property. There are mortgage and leaseholder rights; liens due to unpaid taxes; lien claims to those the owner owes money; mining, oil or air rights and many others.
Anyone who has such a claim is, in a certain way, a part owner. This person cannot ordinarily be deprived of their interest except by having the claim settled or released. As a new owner, you may know nothing about these risks, but you are still vulnerable to such claims on your property. Pretty scary, huh? That’s why your title insurance is so necessary and valuable.
As for the cost of title insurance, in reality it’s very low when you consider its importance. Most policies require a single, one-time payment on or before the transaction’s closing date. The actual premium depends to some degree on the value of the underlying property. However, since the majority of the policy’s cost covers pre-transfer work – title search, examination, etc. – property value isn’t the most important factor.
Some things that can affect the premium cost include:
- How much work must be done to maintain accurate, up-to-date information on the property
- How much work must be done to conduct a thorough title search and examination
- How much work is required to fix any defects or adverse interests
- The expected cost of compensating the insured party for any title defects.
The average title insurance policy consists of a one-time premium of an average of $1,000, which covers all upfront work and ongoing legal and loss coverage. However, premium costs can vary considerably, ranging from a little as a few hundred dollars to more than $2,000.
Regardless of the cost, the value of a title insurance policy far outweighs the price you’ll pay for one.