Title Insurance: Do I need it?

While most customers opt in for title insurance on many transactions, every now and then there is the question why get it? Many do not realize just how important title insurance is. If a buyer is obtaining a loan to purchase the property, they are required to purchase lender’s title insurance plus required endorsements; however, their policy is in fact optional. The good thing about purchasing both policies simultaneously is that the customer is typically only paying $25 more to insure themselves for any transactions where the loan amount doesn’t exceed the sales price. In the event the loan amount is higher, it’s typically pennies and dollars more to get owner’s title insurance.

The only time I have ever seen a true cost savings for customers to opt out of the owner’s title insurance policy is when they are putting a substantial down payment on the property, at that point they would in fact save money at closing but could potentially cost more money in the future should there be a title defect. In no way will the loan policy ever be in the benefit of the customer should they opt out of their own protection. This protection only benefits the lender, and typically is only ever used when the property is foreclosed on and a title defect is found. Another bonus to getting title insurance is it is a ONE time premium. The only time a customer would pay title insurance again on a property is if they refinanced and the new lender required title insurance for the new loan. Typically though, a re-issue credit discount can be offered for this new policy to the lender by providing the title company or attorney a sufficient copy of the owner’s policy. If a customer doesn’t get an owner’s policy at the time of purchase, and refinances later, they will not be qualified for the re-issue credit at the time of refinance, as this discount can only be issued with an owner’s title policy.

So what protection does this policy offer? An array of things, but here is a list of some of the most common:

  • Unpaid mortgage payoffs from the sale, or prior transactions.
  • Unpaid taxes.
  • Unpaid HOA dues/assessments.
  • Unpaid judgments/liens.
  • Prior owners still in ownership.
  • Potential probate issues from prior owners.
  • Incorrect legal descriptions in the chain of title.
  • Fraud.
  • Anything missed on the initial title search that would cause a future title defect.
  • Gap period between when the most recent title search/update was performed, and when the new documents are recorded from the transaction.

I tell customers all the time at closing that they are trusting human perfection to insure the proper procedures are completed, and since no human is perfect, human error is always a huge liability in any real estate transaction. If I forget to pay off a seller’s mortgage at closing, that mortgage could potentially foreclose on the property. This would pose a HUGE issue for both the buyer and seller. In the event a buyer does not purchase owner’s title insurance, they would have to hire their own attorney to defend their title. This could potentially be extremely costly, and much more out of pocket for the customer than it would have been had they bought owner’s title insurance at closing.

In my time at the title claims department, I have seen my share of crazy title issues. There have been sellers who have sold the property twice, and the first buyer never filed the deed with the courthouse showing transfer of ownership in public records. I have seen sellers refinance, or mortgage out their property the day before closing, then close and get a proceeds check knowing what had been done. I have seen tons of documents prepared incorrectly. And I have seen the honest mistakes of hard working title agents and attorneys who are overloaded and inadvertently miss things. Anything can happen, and wouldn’t you or your customer want some reassurance that errors will be fixed through the purchase of title insurance? It’s a small price to pay for peace of mind that you have clear, marketable title when you need it.

Author: Jessica E. Bennett, Licensed Title Agent

DISCLAIMER: The information provided in this article are for informational purposes only and not for the purpose of providing legal advice. The opinions expressed at or through this site are the opinions of the individual author, and may not reflect the opinions of the firm or any individual attorney.