Ask the Egghead: Is title insurance really necessary?

Question: Title insurance seems like an unnecessary waste of money. Is it really that important?

Answer: Every year, about one in five home buyers decline to purchase title insurance, leaving them vulnerable to serious financial risks.

Here’s an example of a problem that could have been avoided with title insurance. A family buys a home from a seller who had an undisclosed $400,000 loan on the property. The buyer’s lender paid the seller directly at closing and did not pay off that unknown  loan. As a result, the family was at risk of foreclosure because the unknown lender had claim against their title.

During closing, a title company helps transition the home to the buyer by looking at public records. If a discrepancy is uncovered, a rep from the title firm fixes the problem before the purchase. Even after the sale is complete and everything seems dandy, the buyer can be in for several nasty surprises:

  • Tax liens discovered after closing.
  • Forgery in the chain of title.
  • Mistakes in recording.
  • Unknown easements.
  • Claims from ex-spouses or heirs.

Title insurance protects against hazards like these and more. The title insurance company pays for legal costs defending an attack on a title, for a one-time fee at closing. In Virginia, it’s up to the buyer to select and pay a title company, and your agent can help you identify and select a suitable company. A policy costs around $1,000 — a small price to pay or the peace of mind you’re getting.

Illustration courtesy of Carlisle Title

More details are available through the American Land Title Association consumer education site.

Buying or selling? Ask me for a FREE consultation!
steveweberhomes@kw.com mobile 571-294-7416