Imagine that a home is purchased only to find that the previous owner had unpaid liens on the property – liens that, without title insurance, would need to be paid by the new owner.

That’s a scenario no homebuyer wants to face, and no real estate agent wants to hear from a previously happy client. It’s the prime reason why real estate professionals encourage their buyers to pay the one-time premium for title insurance.

Title insurance, in simplest terms, is a form of indemnity insurance that protects both lenders and homebuyers from financial loss sustained from ‘defects’ in title – defects such as those unpaid bills, for example, or back taxes, or conflicting wills, or any number of other situations that put lender or buyer at risk.

The one-time premium paid for title insurance covers the title claims. But since title searches are not infallible, the new owner remains responsible for financial loss.

One type of title insurance is lender’s title insurance, which the borrower purchases to protect the lender. The other type is owner’s title insurance which, as experienced agents know, protects the buyer’s equity in the property. The cost of owner’s title insurance varies by state and the purchase price of the home, but typically ranges from $500 to $3,500.  

Homeowners title insurance may differ from policy to policy, but it typically covers these hazards:

• Ownership by another party
• Incorrect signatures on documents, in addition to forgery and fraud
• Flawed records
• Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
• Encumbrances or judgments against property, such as outstanding lawsuits and liens

An escrow or closing agent initiates the insurance process upon ratification of the property purchase agreement. 

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This material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. The material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. Not for reproduction.

About Bobbi Pronin

Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade. 

Bobbi is not an employee of Anywhere Integrated Services or affiliated with its title companies.