Title search and title insurance: do you need both?
Over the years, some clients have asked us why is title insurance necessary if a title search will uncover title defects. Other clients have challenged that they have never needed title insurance on previous home purchases and they don’t personally know of anyone who has needed title insurance. Title search and title insurance: what’s the difference?
A title search is done to make sure the seller has legal claim to a property and has the right to sell it. If no discrepancies are found, the title is deemed a “clean title”, “just title”, “clear title” or “free and clear title”. If a title search reveals liens, claims or judgments, it’s considered a “dirty” title and these issues can be resolved with the help of your title company.
Seems simple enough, a dirty title is flagged and corrected, so why is title insurance needed?
When you pay for title insurance, you are protected from liens, encumbrances, easement, mis-indexed documents and missing heirs that either could appear after you have purchased a home or were not discovered as part of the title search. These problems can be missed by even the best title examiner.
There are two types of title insurance policies: an owner’s title insurance policy and a lender’s title insurance policy. A lender will require a borrower to purchase their policy and it’s a good idea to purchase an owner’s policy too, as each policy has specific coverage that is not interchangeable. Your title insurance policy will cover the cost of fixing the problem thereby saving you thousands in attorney’s fees. Also, unlike car or health insurance, title insurance is a one-time fee to give you peace of mind for the entire time you own your property.
It is extremely risky to not purchase title insurance because we have seen true homeowner nightmares when a dirty title is discovered after a closing. Why take a chance by declining title insurance and just hoping for the best?