Title Insurance Pros and Cons

During a recent real estate closing I was asked whether “title” insurance was necessary (for those of you who are unfamiliar, title insurance is a form of insurance that guarantees that no other individuals can claim an interest in your property.) 

The answer to this question is that it depends on whether a buyer is taking a mortgage or not. 

Whenever a bank or lending institution is involved in providing funds (mortgage) for an individual to purchase real estate the bank or lender will require the buyer of the home purchase a title insurance policy on behalf of the bank or lender.  The reason for this is that the bank or lender wants to be certain that their interest in the property is protected. Thus the value of the bank or lenders title policy is often equivalent to the amount of money that the buyer has borrowed.  However, though the lender requires the borrower purchase a title policy on the lenders behalf they do not require that the borrower purchase a separate “owner’s” policy for themselves. 

An owner’s policy is a separate policy from that of the bank or lenders policy and is designed to protect the buyer’s interest in the real estate.  The value of the owner’s policy is equivalent to the purchase price (property value) of the real estate.

As noted previously owner’s policies are not mandatory and as such it is important to determine that one is being provided.  However, the one time cost associated with an owner’s policy is generally not much more then that of the bank or lenders policy. As such the title insurance company often bundle these policies together providing your bank or lender with their insurance while providing you with a policy without much additional cost.  Ultimately, it is the decision of the buyer in counsel with their attorney to determine whether there is a need for an owner's policy. However, for the peace of mind the one time cost of this insurance can provide, it is highly recommended.

Comments

[johnsons]

good gracious!thanks for this informative information.keep it up,goahead.

[Erica]

Good post.

[spomiNeoxoste]

Keep up the good work.