Title Insurance: Protection You Need



Why is title insurance so important? Consider the recent case of some homebuyers in Texas who purchased properties without title insurance, only to find out later that there were outstanding liens on the homes. When the builder who sold them the homes failed to pay the debts, the creditors instituted foreclosure proceedings against the buyers.

Title insurance -- which protects buyers against challenges to their ownership -- is designed to prevent such a situation. The title company's job is to provide assurance to homeowners that there are no issues that could arise down the line to harm their investment.

Recent news reports about robo-signers and lax foreclosure practices shine an even brighter light on the necessity to have solid title when buying a home. So we asked Jeffrey Yohe, director of communications for the American Land Title Association, and Steve Gottheim, regulatory counsel for the organization, to share some insights into what consumers need to know about title insurance.

The Importance of a Title Search

The title insurance process begins with a title search. The title company reviews public records and other documents pertaining to the house's chain of ownership, including prior deeds, mortgages, bankruptcy proceedings, even divorce contracts. According to Yohe and Gottheim, one out of every three cases turns up a problem with the title. The title company's job is to uncover and resolve these issues prior to closing.
Sometimes, though, problems don't turn up until long after closing. In that case, a title insurance policy will protect the homeowner in the event of legal challenges. For example, consider the case in which the parents prepared a deed leaving the property to their children, but the action wasn't properly recorded. The property was then sold to someone else who had no knowledge of the unrecorded deed. At some point, the heirs could reappear and claim ownership of the property. "Problems like these are why we encourage every homeowner to buy title insurance," says Yohe.

What a Basic Title Insurance Policy Includes

Homeowners should make a point of understanding what kind of coverage they are buying. A basic Owners Policy covers problems such as undisclosed heirs, invalid prior transfers, unresolved liens and unpaid real estate taxes. Typically the policy is issued in the amount of the real estate purchase price and paid for in a one-time fee at closing. The title insurance is in effect for as long as you own the property.

Title insurance rates vary from state to state. Some states, including Florida and Texas, have uniform rates. In other states rates are negotiable. The American Land Title Association has created a consumer website, homeclosing101.org, where buyers can find a list of title companies in their market and get more information about local title insurance coverage and costs.

"Our 101 site is created specifically as a resource for our consumers and as an outreach on why they should consider purchasing title insurance and to educate them on it. This is especially beneficial now, with all the foreclosure issues in this country," Yohe says.

Which takes us right back to where we started with the message reading loud and clear: Protect yourself, since no one else will.

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