Why Title Insurance?

By Jim Palmer Jr.

In a recent personal transaction where I was purchasing a small inexpensive lot, the owner balked at my suggestion that he purchase a title insurance policy prior to closing. He said that he had sold many properties without paying for an expensive title insurance policy and wasn’t about to do it now.  I assured him that because of my experience in real estate for the last couple of decades that I would refuse to close the transaction without it. He finally caved in to the idea, but wanted me to know that he had owned this property for many years and he knew that there were no problems with the title and that he owned it out right.

The problem with that argument is that there could be liens or judgments filed against his property accidentally or intentionally without his knowledge. If there is no title search prior to a sale, this fact would go unnoticed and any new owner would be stuck with the problem. Furthermore, if there was no title insurance issued, any subsequent claims or “clouds” on the title, such as workman’s liens filed after closing, could be the responsibility of the new owner. A title search and insurance policy protects the new owner against such problems.

Some common title defects that can be discovered by purchasing a title policy are: 1) An owner who claims to be in title may not be the actual owner, or there may be multiple owners who have an interest in the property. 2) The current owner (or previous owners) may have failed to record a fulfillment deed (which is proof that full and final payment has been made on a mortgage or other lien).  If past lien holders have moved or are deceased they can’t be found to verify full payment. 3) Judgments or liens can be filed without the knowledge of the owner.  4) Liens or judgments may erroneously show up on title when there is someone in the community who has the  same or similar name as the seller.

Many do-it-yourselfers ignore the importance of title insurance simply because they want to avoid the cost, or they are ignorant of the above described risks. On a $200,000 transaction the cost to purchase title insurance is approximately $800 (a one-time fee). This title protection lasts for the entire ownership of the new buyer. Considering the alternative risk, this is inexpensive peace of mind!