When purchasing a home or refinancing a mortgage, one of the closing costs one pays is title insurance. While every homeowner pays for title insurance, most of us don’t really know quite what it is.
What Is Title Insurance
Simply put, title insurance protects the homeowner against potential defects in the property’s title. But what does that mean for you, in practice?
As a simple example, imagine that a few months after you’ve bought your new home, you get a notice from the sheriff stating that last year’s property taxes were never paid and now you need to pay them or the property will be seized. You’re understandably confused by this–shouldn’t this have been taken care of before the closing?
Yes, it should have. And this is where title insurance comes in. You’d call your title insurance company, file a claim, and they’d pay the back taxes. Crisis averted!
Title insurance can protect against more complex matters as well. Perhaps a prior owner obtained the property via inheritance but the estate was never properly probated, leaving other heirs in a position to demand that you buy out their interest. Or perhaps a prior survey was mistaken, leading to confusion about the boundary lines between your property and your neighbor’s. In both of these cases, your title insurance policy will protect you and cover any financial losses you suffer.
Your title insurance policy will not cover certain things. Typically these will be restrictions and easements running with the land. For example, a utility company may have an easement over a portion of your property permitting them to run power lines or water pipes. Your title insurance policy will except coverage against this matter; you will purchase the property subject to these interests.
Title insurance is relatively inexpensive and protects your investment in perpetuity. While it may not be immediately evident, it’s one of the most valuable purchases you will make.