Often, people never even hear about title insurance until they're about to purchase a home. It can seem like just another added cost on top of the other costs that seem to come out of nowhere. However, title insurance protects you in many necessary ways.
What a Title Insurance Company Looks For
You want a title that doesn't have anything negative or problematic attached to it. If there is a problem attached to the title, you'll want to know about it. The title insurance company will dig up records related to the property and report to you what they find. There's several potential issues they will look for.
Liens and levies - The house can have liens on it from a bank or creditors. In such cases, it's far better to know beforehand. Knowing there's a lien on the property can help you negotiate a better price, demand the seller pay the lien, or walk away from the purchase.
Potentially expensive defects – The title may point out large issues that can become deal breakers. For example, if the title search reveals the house has gone through a few too many foundation repairs in its life, you may want to back away from the property.
Other owners - No matter what a seller says, there's always a possibility he or she doesn't fully own the home. Sometimes other people or groups have a full or partial claim to the property. Maybe the seller inherited the property without knowing it was a joint inheritance with a brother or cousin.
Fraud – The title search can reveal the person attempting to sell the house doesn't own it all. There's a lot of scams involving unscrupulous people who knowingly attempt to deceive others by trying to sell homes that don't belong to them.
After the title company does its digging and furnishes you with the report, you can make a more informed decision about the home purchase.
What if Things Happen After the Purchase?
What happens if the title company reports no issues, but someone shows up to claim they own the house after you already made the purchase? If the person or group can prove ownership of the property, then you're out of luck. At least you would be without title insurance.
The title insurance company will guarantee its findings and protect you if someone makes a claim for the property after the fact. Typically, they will pay for your legal fees if there's an ownership challenge, or if a group tries to seize the property.
If the other party succeeds in claiming the property, your title insurance will reimburse you for the funds you've already put into the property. In this way, you can recoup most or all the money you put into purchasing the property.
Title Insurance Isn't Always Optional
You should consider title insurance a necessity. Even if you don't, some lenders will make title insurance mandatory. Keep in mind that if you lose the house after closing, a lot of the lender's money goes with it. Lenders have a real interest in preventing such a scenario.
Speak to your real estate agent or broker about title insurance. A local real estate professional will likely already know of a good title insurance company they've worked with in the past.