A Look at Title Insurance

Title insurance refers to indemnity insurance for your property. First established in the U.S. in 1853, it is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens, or other surprises involving your property purchase. This insurance defends you against a lawsuit attacking your title, or will reimburse you for actual monetary loss incurred up to the dollar amount of insurance the policy provided.

Real property interests insured are either fee simple (full outright ownership) or a mortgage (loan secured by a lender).  However, title insurance can be purchased to insure any interest in real property, including easements, leases, or life estates.  Just as lenders require that you hold fire and other types of insurance to protect their investment, nearly all lenders (save for some non-institutional ones) also require title insurance to protect their interest in a loan secured by real estate. Buyers purchasing properties for cash often go for title insurance to protect their purchase. All in all, for a little money, you can save yourself a lot of headaches.

There are three types of policies for buyers to choose from. Standard is the cheapest, followed by ALTA® Homeowner’s (American Land Title Association), and finally, Extended.  Costs vary depending on the property value.

Standard Coverage insures only items found by searching public records.

ALTA® Homeowner’s Coverage has the same coverage as Standard, plus items which may pop up post-policy.

Extended Coverage involves having a survey done, and is probably the best choice if you’re purchasing land and you want to verify your property boundaries and outbuilding encroachments.

The chart below outlines the types of policies in more detail.

There’s some famous examples of people who lost their homes due to no title insurance. When Abraham Lincoln was three years old, his family was forced to move from his birthplace because of title errors, and the same thing nearly cost them their second home four years later. Frontiersman Daniel Boone lost tens of thousands of acres of land he speculated in, also due to errors in his title documents.  Title insurance was established to ensure that what you buy is truly yours, with no worries about forgery, deceptive surveys, hidden liens, conveyances by minors or mentally incompetent persons, and other title errors.

This information is based on rules and regulations issued by federal agencies, but please check with your bank or loan adviser to discuss your title options in more detail.  Or, just contact us at this Stroupe Group link for more info.