Title insurance, one of the many fees buried within the mound of paperwork on closing day. Lenders require a policy for their protection, typically funded by the borrower. However, the new homeowner is presented with the option to purchase an owner’s policy.
Closing costs add up quickly, so when a particular cost is presented as “optional”, it is easy to consider it an unnecessary expense. But, a homeowner must carefully consider the potential risks of excluding title insurance from the closing package. Is title insurance worth the cost? Here are some things to consider.
What is Title Insurance?
Title insurance is a one-time-cost that protects the holder from a financial loss endured from defects within the title of a specific property. As part of the home buying process, a title research company will investigate the history of the property’s ownership. Ideally, the results will present a “clear title”. This means the seller has complete ownership of the property and there are no legal claims (lien or levy from a lender, creditor or government) against it.
Why Buy Title Insurance?
If the title research company doesn’t find any defects or claims against the title, why buy title insurance? Issues that are yet to be discovered could potentially cloud the ownership of the property, even years after purchase is complete. For example, there may be oversight within the responsibilities of the title researcher, a mistake in the ownership history, or perhaps an unknown heir. An unsettled lawsuit, legal retribution or fraudulent accusations could also present potential title issues.
Is Title Insurance Worth the Cost?
Can one make an argument against the “optional” purchase of a title insurance policy? Absolutely. But, consider this: The warranty deed provided by the seller implies that the seller owns the property free and clear of any liens or levies and is transferring to the new owner as such. As a result, the buyer could rightfully assume any ownership defect would be the seller’s responsibility, including any legal action. However, even though the seller has transferred this risk to the policy protecting the lender, the buyer is still at risk.
When deciding whether or not title insurance is worth the cost, remember that a title claim can happen years after purchase. At the very least, title defects could result in a variety of legal costs. In more complex cases, the risks could be equivalent to a down payment and any equity you might have. For most home buyers, it is simply an issue of “better safe than sorry”.
For more guidance in making a responsible decision regarding title insurance, please contact the Law Offices of Leo White at (610)579-9141.