April 7, 2021

Why Buyers Need Title Insurance

Why Buyers Need Title Insurance

This article talks about what an owner's title policy covers and why every buyer needs one. When a buyer needs a mortgage to purchase a home, a lender's title insurance policy is required by the lender to protect the lender’s interest in the property. The owner can obtain similar protection at a discounted price by purchasing an owner’s title policy at the same time.

Purchasing title insurance is a standard part of the closing process, but it is important to understand what title insurance is as well as why it can protect you if the worst-case scenario happens. Your home may be the most expensive thing you will ever buy. In comparison to your investment, the one-time title insurance premium averages between only $850 and $2,000 (depending on your sales price), but you are protected against expensive ownership title claims for as long as you own the home.

What is Title Insurance?

With the purchase of a home, a buyer is given title to the real property. In other words, the buyer receives the title which states their legal right to own the property and do what they want with it in accordance with the law. Title insurance protects that right against attempts to interfere with that ownership and protects against interference with marketability of title.

Why You Need Title Insurance as a Buyer

Examining and clearing title at closing is standard procedure, so a buyer may assume that they do not need to purchase owner’s title insurance. However, not all title defects can be uncovered by a diligent title exam at the time of closing, and for the new homeowners who do fall prey to title issues, the financial ramifications can be huge.

Examples of common title defects include:

  • A previous owner used the home as security for an outstanding loan
  • A previous owner included the home in an inheritance and it was overlooked
  • Stolen or forged documents
  • A previous owner did not get a signature from a co-owner
  • Liens that seek payment for debt such as taxes, child support, or contractor's fees

While owner's title insurance covers expenses related to unknown title defects and may help you get full ownership of the title, the policy also defends you against lawsuits that interfere with your right to title or the policy may pay out policy limits. This protection protects the buyer, their investment, their finances, and potentially their home—not to mention gives them the peace of mind they need to enjoy their new home.

For additional information on this topic contact Evelyn Miller, Partner, at 202-753-7400.

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