What is title insurance, and how do I know if I need it?

On Behalf of | Nov 14, 2023 | Title Issues

When buying real estate, title insurance may be required. This one-time charge could be applied during closing, along with other closing costs.

The required title insurance is for the lender. But there is also title insurance that property purchasers can buy, giving themselves similar protection to a mortgage lender. If you are buying real estate, it is important to know what title insurance could protect you from, and whether you need to purchase it.

Conducting a title search

When purchasing property, a title search should be carried out. If there are any third-party claims on the property, they will theoretically be exposed at this time. But there’s always the chance that a claim won’t show up, you’ll close on the property and then the third party will make a claim. In some cases, this could even happen years after the purchase.

What are some examples of hidden claims?

One example is a construction company. Maybe they were hired to build a home, but they were never paid. That company is still looking to collect payment and may contact you as the new owner of the property. But you may have had no idea that the previous owner never paid their bills and you don’t want to have to pay the construction company yourself.

Another example is if taxes are owed. A lien may have been put on the property, something that could also be done in the above example with the contractor who wasn’t paid. The entity that is collecting taxes – such as the state or the local municipality – still wants to collect.

Other potential issues include a forged title, a lien from a previous lender, issues like encroachments or easements, boundary disputes or errors made by a property surveyor, conflicts in estate plans or wills that may be connected to the property, building code violations or claims from a co-owner who didn’t know the property was being sold.

Do you need insurance?

Personal title insurance may not be required, but it could be wise if a new property that you are purchasing is a significant investment and you don’t want to risk being placed on the hook for hidden claims that may crawl out of the woodwork once you take ownership. Make sure you carefully consider your legal options before moving forward with a property, as being proactive now could save you a great deal of grief down the road.