What is title insurance?

In Oregon, “owner’s title insurance” is required and is paid for by the seller when you buy a home.  The “lender’s title insurance” is also required and is purchased by the buyer when they take out a mortgage.  I was made aware this evening that not all states are like Oregon.

I have been assisting my cousin’s in their purchase of a home back in New Hampshire.  In that state, “owner’s title insurance” is optional and is purchased by the buyer (not the seller).  They called me to ask whether or not they should buy it.  As an optional cost I had to think back on what title insurance is and what it covers.  Here is a good summary I found on line:

Title insurance insures against loss sustained by an insured due to the condition of title being other than as insured. The beneficiaries of title insurance policies generally are real estate buyers and mortgage lenders. A title insurance policy protects the named insured against title defects, liens and encumbrances existing as of the date of the policy and not excepted from coverage. For a one-time premium paid by the seller or borrower, the policy remains in effect until the property is sold or refinanced.

A title insurance policy provides you with peace of mind. It takes the risk out of acquiring property whose legal history is unknown to you. While there should be no risks in transferring property, they do exist. Through the years, your new property may have changed hands many times through sale, inheritance, foreclosure, or bankruptcy. Each transfer was an opportunity for an error in title to arise. If an error occurred, and has never come to light, it puts your title in jeopardy. You could lose your property and the money you paid for it. And, even if you successfully defend your rights of ownership, the cost in time and legal fees could be prohibitive. Among the many risks against which title insurance protects you are:

  • Confusion from similarity of names
  • Forged documents
  • Signatures of minors or mentally incompetent persons
  • Mistakes in recording legal documents
  • Undisclosed or missing heirs
  • Fraud
  • Invalid divorces
  • Misrepresentation of marital status
  • Unpaid taxes
  • Clerical armors in public records
  • Wills not probated