Why obtain title insurance

For example, the seller might have copurchased the house ten years ago with a brother he hasn't talked to since—and he's unaware that he now needs his brother's signature to sell.

Or sometimes, problems lurk in the more distant past. For example, the seller might have bought the place from a single woman, not realizing that her ex-husband still co-owned the property and hadn't signed off on the sale as required. Or the seller might have inherited the house under the terms of a will that—oops—turns out to have been out-of-date, and a more recent will leaves the house to someone else.

Not all title problems involve the whole house. For example, people or agencies might have filed liens against the property —legal claims to be paid from the proceeds of the property's sale, in order to settle the homeowner's debt to them. The most common types of property liens seek payment for debts related to taxes, child support , and contractor's fees often referred to as " mechanics liens ". These liens stick to the house like glue, until the house is sold or foreclosed on. Disputes over property boundaries also often result in title insurance claims.

In any of these situations, title insurance will step in to help. One important note on co-op housing : If you're buying a co-op, where you won't actually own real estate just shares in a corporation , no title insurance is needed. Title insurance is typically a combination of two policies: a lender's policy and a borrower's policy. Your lender—assuming you're taking out a mortgage loan —will require that you buy a lender's policy also called a "mortgagee's policy" to pay for its legal defense costs and reimburse any mortgage payments you can't make because you've lost the house to someone else's claim on it.

The lender might also require you to buy an "owner's policy" to cover your own legal fees and other losses, as yet another step toward protecting the lender's collateral.

Even if your lender doesn't require you to buy an owner's policy, you should probably consider buying one anyway. Why do you need both policies? No preliminary title search see below to learn about title searches , no matter how complete, can predict when a long-lost relative or heir will turn up or whether paperwork buried for years under a misspelled name will reveal a claim concerning the property. The lender's policy will kick in to defend such claims and, if all goes well, might resolve the matter against whoever brought it up.

TJ Porter is a contributing writer for Bankrate. TJ writes about a range of subjects, from budgeting tips to bank account reviews. Edited By Suzanne De Vita. Edited by. Suzanne De Vita. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Reviewed By Robert R. Reviewed by. Robert R. Johnson, Ph. Share this page. Bankrate Logo Why you can trust Bankrate. Bankrate Logo Editorial Integrity.

Key Principles We value your trust. Bankrate Logo Insurance Disclosure. What is title insurance? Title insurance definition Title insurance protects mortgage lenders and homebuyers against defects or problems with a title when there is a transfer of property ownership.

Read more From TJ. Title Insurance. Title Insurance What is Title Insurance? What is Title Insurance? What is a title? How does title insurance differ from other insurance? How is a title insurance policy created?

What are the title insurance policy types? A title issue could also arise as a matter of fraud. Lenders insist on title insurance to protect their interest in the loan. And that makes sense, because they're on the hook for the majority of the home's value, especially in the early years of the mortgage. I own this property free and clear. I'm transferring it to you free of any other liens. So any ownership defect would be the seller's responsibility, right?

But remember, the seller has transferred that risk to the insurance company. And even though the lender is protected by the title policy, your stake in the home could be at risk. That would be equal to your down payment and any equity you have. Again, a title claim could happen many years after your purchase.

How much will it cost to buy both?