Why Do You Need Title Insurance?

  • How do you prove that a seller actually owns the home he or she is trying to sell? You conduct a title search, in which a chain of ownership from the time the home was built until the present is established.

  • Title searches vary from place-to-place, but they´re generally done manually, by lawyers, title companies, or other title specialists, because historical real estate documents are rarely recorded on computers.

  • A title search is necessary because the lender needs to know whether there have been any liens, judgments,

or easements filed against the property, which might prevent you from being granted a good title.

  • Title insurance helps protect the buyer from possible "defects" on the title. If any of the documents that establish the title are mistaken or omitted, for instance, and it turns out that the property is less valuable than originally appraised, the title insurer will reimburse them for lost value.

  • If the insurer notes a defect before the sale, however, the buyer is responsible for contacting the seller and correcting it.

  • Title insurance is paid as a one-time premium; the cost is based entirely on the sales price of the home.

  • In most cases, the seller pays for the title search so he or she can guarantee that the buyer gets a good title. The lender, meanwhile, will want the buyer to pay for the title insurance to cover the lender. It´s not strictly necessary for the buyer to cover him or herself, but it´s usually a good idea. If you buy both the lender´s and buyer´s title insurance together, you may get a discounted rate.

  • If you´re working with a real estate attorney, they can also often obtain discounted rates if they work regularly with a title company.

  • Finally, if the seller has only owned the home for a short period of time, the seller´s original title company may be willing to issue the buyer a discounted "reissue" rate.