What Is the Purpose of Title Insurance?
- The first advertisement for title insurance appeared in the 1870s, according to Old Republic Title. The ad stated that by insuring buyers against bad titles, liens and other encumbrances, the company would make real-estate transactions more secure and easier to complete. Since then, title insurance has grown to become a standard part of home buying; most mortgage lenders require title insurance before lending you money.
- Title insurance companies do more than simply write you a policy. To minimize the risk of a payout, they search the "chain of title," linking one owner to the next and looking for possible problems. The California Department of Insurance states that the problems insurers look for include errors in deeds, forgery, undisclosed heirs and undisclosed liens, which are claims against the property for debt.
- Title companies check more than just the property's sale history, the department states. Searchers also check records related to past owners, for example, divorce decrees -- is it clear which spouse got the title? -- tax records, maps, wills and court judgments. If they find a problem, it will have to be resolved before the mortgage lender agrees to go ahead with the sale.
- In addition to paying court costs, the Mortgage Professor website states, title insurance also covers financial losses if someone else proves he has better title to the land than you. The policy lenders require you to protect them against losses up to the amount of the loan; if you want to protect your own investment, you'll need an add-on policy covering the value of the property.
- Title insurance will protect you as long as you own the house, and it will also protect your heirs. If the house is sold, the new owner will have to take out a new policy, the Mortgage Professor states. You're not protected from title problems or liens that happen after you take out the policy, however. If a contractor files a lien on your house over a bill you didn't pay, title insurance won't help.