Title insurance protects against defects in ownership history: liens, errors, undisclosed heirs. When you buy a home, you are buying not just the house and land but the right to own them. Title insurance protects that right against problems from the past that were not discovered before closing. It is one of the less glamorous parts of a real estate transaction, but it can matter a great deal if something goes wrong. Here is a plain-language explanation of how it works and the two policies you will hear about. This is general information; the closing attorney can answer questions about your specific policy.
What “Title” Means
Title is the legal right to own and use a property. A property’s title history is the chain of ownership from one owner to the next, recorded over time in public records. Each transfer, mortgage, lien and easement adds to that history.
Before closing, the closing attorney’s office examines the title by reviewing these records. The goal is to confirm the seller has the right to sell, identify any claims against the property and clear them before you take ownership.
What Title Insurance Protects Against
Even a careful title search can miss problems. Records can contain errors, documents may have been forged, and some issues do not show up in the public record at all. Title insurance covers losses from covered defects that existed before you bought the property. Common examples include:
Liens
A lien is a claim against a property for an unpaid debt. Examples include unpaid property taxes, contractor liens for work that was never paid for, judgment liens and old mortgages that were not properly released. If a lien surfaces after closing, title insurance can help resolve it.
Errors
Mistakes in public records happen: incorrect legal descriptions, misspelled names, documents filed in the wrong place or missing signatures. These errors can cloud title and create problems when you try to sell or refinance.
Undisclosed heirs
Sometimes a previous owner died and an heir with a legitimate claim to the property was not identified. If that person later comes forward, title insurance can protect the owner. This is especially relevant in areas where land has passed through families over generations.
Other covered issues
- Forged documents in the chain of title.
- Fraud or impersonation by a previous seller.
- Undisclosed easements or claims, depending on the policy.
- Problems with how earlier transfers were completed.
Every policy has its own terms, exceptions and exclusions, so read yours carefully.
Two Policies
There are two kinds of title insurance policy in most residential purchases: a lender’s policy and an owner’s policy.
Lender’s policy (required)
If you finance your purchase with a mortgage, your lender will require a lender’s title policy. It protects the lender’s interest in the property up to the loan amount. As you pay down the loan, the lender’s coverage effectively decreases, and it ends when the loan is paid off. Importantly, the lender’s policy protects the lender, not you.
Owner’s policy (recommended)
An owner’s policy protects you, the buyer, and your equity in the home. It typically covers you for as long as you or your heirs own the property. While it is optional, it is recommended because it is the only policy that protects your own investment against covered title defects. If a covered problem arises, the policy can pay for legal defense and covered losses up to the policy amount.
One-time premium at closing
Unlike homeowners insurance, which you pay every year, title insurance has a one-time premium at closing. You pay once, and coverage continues according to the policy’s terms. The cost appears on your settlement statement. Ask the closing attorney for an estimate of both policies early in the process so you can include them in your budget.
The Title Commitment
Before closing, you will receive a title commitment. This document describes the policy the insurer is prepared to issue and the requirements that must be met first, such as paying off the seller’s mortgage. It also lists exceptions: items the policy will not cover, such as recorded easements, restrictions or matters a survey would reveal.
How to read it
- Confirm the names and the legal description of the property.
- Review the requirements that must be satisfied before closing.
- Read the list of exceptions carefully.
- Ask about any exception you do not understand.
- Ask whether a survey would change any exceptions.
Why It Matters in the Mountains
Mountain land often has long and sometimes complicated histories. Tracts may have been divided many times, passed through families or described with old landmarks. Shared roads and informal access arrangements are common. These factors make a careful title search and a good owner’s policy especially valuable.
Questions to Ask
- What will the owner’s and lender’s policies cost?
- What does my owner’s policy cover, and what does it exclude?
- Are there exceptions I should be concerned about?
- Would a survey expand my coverage?
- What happens if a title issue appears after closing?
Next Steps
- Ask the closing attorney for a title insurance estimate when you go under contract.
- Plan to purchase an owner’s policy to protect your own investment.
- Read your title commitment as soon as it arrives.
- Bring questions to Sherry and the closing attorney well before closing day.
