Title insurance is among the costs of successfully closing a real estate transaction, but many people don’t understand what this is for, or why they must pay for it. First of all, realize that title insurance works differently from traditional insurance policies in a very important way.
Other types of policies may protect you from future events, and you must continue to pay the premiums for as long as you want that protection. Title insurance is (usually) a one-time purchase that actually protects you against losses arising from hazards from the past.
Why is it so important to own clear title to a property? Last year, the biggest issue that title insurers covered was obtaining releases or pay-offs for liens that were discovered during a title search (like unpaid prior mortgages, taxes, child support, etc.) You wouldn’t want to buy a home, and then have creditors show up and say, “Sorry, but the previous owner owes us and this house was the collateral.”
If you question the cost of title insurance, keep in mind that many companies often search records back fifty years or more to discover and correct problems, often without even involving the homebuyer.
Be sure to ask the real estate agent any questions you have about title insurance or other fees included at closing. A little knowledge can go a long way.
