Title Insurance: What is it and Do I Need it?
If you have read my blogs or bought or sold real estate recently, you may recall hearing about title insurance. You may also be thinking, “what the heck is it?” and “do I need it?” Well, the short answer is, it protects you against claims to your property and, yes, you need it. Thanks to Chad Pearman, P.C., my personal real estate/closing attorney, I will break it down in terms we can all understand.
There are two types of title insurance; Lender’s (Mortgagor) and Owner’s or Mortgagee’s.
Lender’s title insurance protects the lender against the priority of their mortgage. It insures that they are in first position to get their lien paid. As a general rule, if you get a loan to buy property, the lender will require a title policy.
Owner’s title policy insures that you own the property, that no one else has a claim to it, and that ANY prior owner has conveyed all ownership to the property.
When you purchase title insurance (or another party to the real estate transaction purchases it for you), you can choose to purchase an Enhanced Policy. An enhanced property will go beyond the general title insurance policy and will cover things like encroachments on the property (such as a fence or driveway).
Do I need it? Here are some reasons why you may think twice about not getting title insurance:
- A property was purchased at a foreclosure sale. The Buyer purchased title insurance though there was no lender involved to mandate that it be purchased. The previous owner had taken out several mortgages and filed fake releases. The title insurance company paid approximately $40,000 to defend the new owner’s title to the property without having to pay the lien holders since the previous owner had defrauded the other mortgage companies. (I wonder if that person is in jail…)
- A property was fraudulently deeded to an LLC from a deceased person which sold to a new owner.
- The wrong Trustee signed the deed and, therefore, didn’t have the right to sell the property that was already “owned” by someone else.
- An heir still had an interest to a property because the probate proceedings were done incorrectly. The person has not been found. If the current owner to the property does not have title insurance, that lost heir can come back and claim that they own it.
So hopefully now you know a little more about title insurance and why, yes, you need it. Please consult with your local agent or real estate attorney to get more information.
Photo courtesy of Stuart Miles via freedigitialphotos.net
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. Wife to Robert, “Mom” to Tyler and Livvie, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.