Many Buyers and Sellers wonder about that ‘title insurance’ charge on the Settlement Statement. The Seller buys a policy for the Buyer and the Buyer pays for a policy for their Lender (if they are getting a mortgage). So what is it and why?
What is title insurance?
Title insurance protects a policyholder against challenges to rightful ownership of real property, challenges that arise from circumstances of past ownerships.
Why do I need it?
Each successive owner brings the possibility of title challenges to the property. To illustrate how title insurance protects the home owner(s), here are a few reasons for title insurance:
- A deed or mortgage in the chain of title may be a forgery.
- A deed or a mortgage may have been signed by a person under age.
- A deed or a mortgage may have been made by an incompetent person.
- A deed or a mortgage may have been made under a power of attorney after its termination and would, therefore, be void.
- A deed or a mortgage may have been made by a person other than the owner, but with the same name as the owner.
- The testator of a will might have had a child born after the execution of the will, a fact that would entitle the child to claim his or her share of the property.
- A deed or mortgage may have been procured by fraud or duress.
- Title transferred by an heir may be subject to a federal estate tax lien.
- An heir or other person presumed dead may appear and recover the property or an interest therein.
- A judgment or levy upon which the title is dependent may be void or voidable on account of some defect in the proceeding.
- Title insurance covers attorneys’ fees and court costs.
- Title insurance helps speed negotiations when you’re ready to sell or obtain a loan.
- By insuring the title, you can eliminate delays and technicalities when passing your title on to someone else.
- Title insurance reimburses you for the amount of your covered losses.
- A deed or mortgage may be voidable because it was signed while the grantor was in bankruptcy.
- There may be a defect in the recording of a document upon which your title is dependent.
- Claims constantly arise due to marital status and validity of divorces. Only title insurance protects against claims made by non-existent or divorced “wives” or “husbands.”