What Is Title Insurance?
Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. The most common type of title insurance is lender’s title insurance, which the borrower purchases to protect the lender. The other type is owner’s title insurance, which is often paid for by the seller to protect the buyer’s equity in the property.
A basic owner’s basic title insurance policy typically covers the following hazards:2
- Ownership by another party
- Incorrect signatures on documents, as well as forgery and fraud
- Flawed records
- Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
- Encumbrances or judgments against property, such as outstanding lawsuits and liens
Risks of Not Having Title Insurance
Having no title insurance exposes transacting parties to significant risk in the event a title defect is present. Consider a homebuyer searching for the house of their dreams only to find, after closing, unpaid property taxes from the prior owner. Without title insurance, the financial burden of this claim for back taxes rests solely with the buyer. They will either pay the outstanding property taxes or risk losing the home to the taxing entity.
The cost of Having a Title Insurance can be between $ 500 and $ 3,500, depending on the state you live in, the insurance company you choose, and the purchase price of your home.