Title insurance is a type of insurance that a purchaser of a property (other than a coop which will be discussed later) should buy at the closing of title. This insurance will insure the purchaser's ownership of the property free of any liens, claims or encumbrances. Most people just think it is a fee that has to be paid at closing and is of no significance. In reality, however, it is no different than any other type of insurance in that you buy it and you hope you never have to use it. But if you do have to resort to filing a claim with the insurance company, you will be very thankful that you purchased the insurance (even if at the time you were annoyed to spend the money).
A dramatic example of how title insurance protects a homeowner is as follows. You bought a house from John Doe. As it turns out, John Doe died three years prior to the closing. At the closing, a person with Jon Doe's ID signed the deed and took off with your money. After the closing, the real John Doe's daughter comes to the house and is shocked to see that you moved in to her deceased father's house. If you bought title insurance, and assuming this very simple fact pattern, the title company would be on the hook for making you whole as far as returning to you the money spent to purchase the house. As an aside, you will not be covered for closing costs.
This is a very simple explanation of title insurance and there are many other facets as well as different options of coverage available so if you have any questions, please comment (or email) and I will do my best to reply.
2 comments:
First thank you for the information provided in your blog. It is very helpful.
I bought a single family house 2 years ago and had Title Insurance at the closing. My question is if I re-finance now, do I need to pay for another title insurance? Based on the explanation you give, the title insurance is made against the house not the mortgage, right?
You beat me to the punch. My next post will be about title insurance when you refinance.
The short answer to your question is yes, you do have to pay for another title insurance policy but it will only insure the bank (since you already have title insurance). As such, it will be a lot less expensive than what you paid for your title insurance and, depending on when your current mortgage is from, you will be entitled to a 30% discount from the regular rates. As an aside, when you bought the house, assuming you had a mortgage, you also bought title insurance for the bank. Banks require that you buy title insurance when you get a loan. Consider a home equity credit line to save some money on closing costs. I will discuss all this in greater detail in the post so please check back and feel free to contact me directly for more info.
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