If you’ve ever bought a home, the question of “title insurance” has surely come up. If you had a mortgage, you were forced to buy it by your bank, and if you paid cash for the property, your lawyer probably offered it to you. And if it was, I’m sure your lawyer strongly recommended that you buy it.
While there’s a good chance you actually bought it, you may not be sure exactly what you bought and why it was so important for you to have it. Title insurance is basically a form of insurance that protects against financial loss resulting from defects in the title of your real estate. In other words, if there was a problem with the chain of title to your property, your title insurance will insure your loss due to that defect. This may still seem like a vague description, so think of it this way:
When buying a property, you want to be sure that what you are buying is clean and free from defects or other issues. To guard against this, your attorney will always perform a title search, which involves looking up the chain of title to your property in the city’s land evidence records for at least the previous 50 years. This is where all issues with your property are recorded. What he or she is looking for are issues like liens, court judgments, mortgages and easements. These issues are easy to find and can usually be handled and resolved quickly.
But what about the issues that a close look at the title can’t uncover? These are the things you buy title insurance to cover. These issues include errors in public records, illegal acts, forgery, boundary disputes, unregistered charges, and even missing heirs to the property. And living in New England, one of the most common scenarios even involves finding Native American burial sites that might be on your land, which could lead to claims against you.
In all of the above cases, none of these parties have gone to town hall and registered their claims, but these issues can still be an insult to your title. Without title insurance, any of these issues could require you to defend your title at great expense and may even result in the loss of your property. Having title insurance can reassure you that you won’t lose your home should any of these defects occur later.
Now that we know what title insurance is, the next obvious question is whether it’s worth it. Considering the price you pay for your property, the answer is almost always yes. Where hazard insurance and auto insurance are policies you pay for monthly, title insurance is different. This is a one-time payment that you make when you purchase your home and is valid for as long as you own the property. And considering the price you pay to buy your home, title insurance is a small cost. Although it varies by state and the amount you are paying for your property, it can cost you less than 1% of the purchase price. It’s a small amount to pay once for peace of mind that a hidden title defect won’t cost you your home.
So basically, title insurance protects against all the issues that a thorough and competent title examination couldn’t uncover and, in the long run, might be one of the wisest decisions you can make regarding buying your home. So the next time you buy a property, when you are offered a title insurance policy, your answer should be yes.
Marc Page is a lawyer and practices general law at Westerly. It is licensed in both Rhode Island and Connecticut and can be reached at 401-596-1726.