Why Is Title Insurance Needed?

Title insurance is an essential part of virtually every transfer of ownership. Unlike most insurance which protects against the risk of future events, title insurance exists to elimi­nate losses due to defects in title which occur as a result of things that happened in the past. Even the most careful title search will not reveal some situations or events that could cast doubt on your title to the proper­ty. Some of these are: mistakes in the public record; fraud or forged title instruments; undisclosed heirs; adverse possession, undisclosed prescriptive rights, and others. The title examiner is not liable for such matters, nor for title defects or rights of others that are not of record. Title insurance, generally, will protect the insured party from financial loss or damage for covered risks up to the policy limits. Such expenses typically include attorney's fees in defense of title and the payment of monetary claims.

Who Does Title Insurance Protect?

Both the lender and the owner have an interest in the owner's clear title to the property and separate title insurance policies are available to protect their respec­tive interests. Generally, if the purchaser is financing any portion of the purchase price, a commercial lender will require that a Lender's Title Insurance Policy be issued to insure the lender to the maximum amount of the loan. Though this policy protects the lender, it is the owner who will pay the premium at settlement as one of the costs of obtaining the loan.

For the property owner to be protected, the owner must elect to purchase a separate Owner's Policy of Title Insurance which protects the owner up to the face value of the policy (typically the purchase price). While a purchas­er is not required to buy an Owner's Policy or Title Insurance, it is highly recommended that the purchaser do so because a home is usually an individual's largest invest­ment. It is our opinion that an owner would be ill-advised not to protect her growing equity and the value of her investment in the property. Both, minor defects and cata­strophic title failures are insured against by the single-pre­mium-payment charged at closing. The policy's protec­tions extend beyond the period of your ownership and continue to defend your estate even after your death. In recent years, property owners have been able to purchase enhanced title insurance policies which further protect them by increasing the policy limits over time in recogni­tion of fast rising values as well as insuring owners against some post-policy events; e.g. the post settlement discovery of zoning & building permit violations, encroachments, adverse possession, transfers into a trust, and other title risks.

**Source: Key Title