Real Estate Closings

WHY YOU NEED TITLE INSURANCE

Title insurance protects the policy owner in the event a third party makes a claim to the title of the property. A title examination is prepared prior to your closing, and presumptively there will be no title problems when you close. However, there are several scenarios that can cause defects in title to property that are undetectable by a title exam. Here are a few examples:

1. Suppose Mr. and Mrs. Smith own the property jointly, but Mr. Smith forges Mrs. Smith's signature on the deed, conveying the property to you. If Mrs. Smith sues for the property, she wins, you lose. A forgery is not discernable in a title exam.

2. Similarly, suppose Mr. Smith engaged in a fraudulent conveyance to you by pretending to be the property owner, Mr. Jones, when in fact he was not. Fraud is not discernable in a title exam either.

3. If your builder fails to pay a subcontractor, the subcontractor may file a lien on your house to collect his money. Although the lien is filed a month before your closing, it may not be listed on the courthouse index for several months. Therefore, the title examiner would not be able to find that lien in his title exam.

4. Assume again that the subcontractor files a lien on your house but the lien has been mis-filed in the county records, the lien is valid but not apparent to the examiner.

In the event a third party makes a successful claim on your title you could lose your home. Even if someone makes a claim to your property that is eventually determined by a court to be spurious, your legal fees to defend that claim will be significantly more than the one-time cost for your coverage.

When you receive a Good Faith Estimate from your lender, you will see a charge for Lender's Title Insurance. As a condition of the loan, the lender will require this coverage to protect the loan amount. However, the lender's title insurance does not cover your equity in your house. You will have the option at closing to purchase Owner's Title Insurance. The cost of title insurance is a one-time fee at closing determined by a rate chart issued by the title insurance company. The policy is effective for as long as you own the property.

Please note that Owner's Title Insurance is usually not included on your Good Faith Estimate because it is not a requirement of your lender. Our firm, however, will include the charge for that policy on your Settlement Statement. You may elect to refuse the coverage at closing. Be sure to discuss Owner's Title Insurance with your other real estate professionals.

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