Title Insurance is an insurance policy that protects lenders and homeowners from potential problems caused by irregularities that may have occurred in the past. Dollar for dollar, it’s one of the most cost-efficient forms of insurance for home owners. Its relatively low, one-time premium covers you against legal problems that could cost tens of thousands of dollars—and even the loss of your home.
Over time a parcel of real property may transfer dozens of times. At any point along the title chain a problem may arise that puts the true ownership of the property in doubt. These include:
Long lost relatives or past owners could show up, sometimes from long ago, with a claim to the property that supersedes yours.
Sometimes people fraudulently sell houses that don't belong to them. For example, the husband of a divorcing couple could forge the signature of his wife, and abscond with the proceeds of the sale. In a court of law, the rights of the wife could be upheld and the property could go to her, no matter how much money an unsuspecting purchaser had placed in the house.
To get loans, people often use property as collateral (security against nonpayment). If someone doesn’t pay back their loan, the lien holding lender has a legal right to sell off the property to get their money back—even if the house has since sold to a new owner. This is because the lien (claim to a property as payment on a debt) is on the house. Unless the debt is paid off and the lien released, the lien stays with the house even when it changes ownership.
With today’s booming refinance and home equity markets, lenders’ interest in properties has increased exponentially and both lenders and county recorders are challenged to keep up with the documentation. So it’s more likely than ever that an unrecorded or unreleased interest in your property could be out there, making title insurance more important now than ever.
An easement is a right to use the land of another for a special purpose. For example, the city may have plans to build a sewer line sometime in the future. If the sewer line runs through the back of your yard, and if the city has an easement on the underground portion of your property, this might cause your prize roses to be dug up, or prevent you from building a pool in your back yard.
If a homeowner fails to pay his or her taxes, local, state or federal tax authorities can obtain a lien on the home, which gives the government a claim to that property in case of nonpayment of debt. If the owner sells the home without settling the tax lien, the tax authority can legally get the new homeowner to pay the original homeowner's back taxes. And if the new homeowner fails to comply, they could lose their new home.