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What Is Title Insurance And Do I Need It?

by Hugh Fitzpatrick, CEO and Founder of New England Title and Escrow Services | Apr 07, 2017

One of the most common questions with any real estate transaction is, ‘do I need title insurance?’ To answer this, it may help to clarify what title insurance is. In brief, title insurance guarantees that the insured will suffer no loss if, when the title is searched, any liens, executions or other encumbrances are discovered that may significantly alter financing of the purchase.

Title insurance comes in two forms: If you take out a mortgage on a property, you are required to buy title insurance on behalf of the lender. This is called a lender's policy. If you are purchasing a home, you may elect to buy title insurance, known as an owner's policy.

So, is this insurance necessary? Will there really be problems with the title?

The answer is yes, there can be. There can be problems even an experienced title abstracter can fail to discover. Issues may arise anywhere from a paperwork mistake made many years ago, a filing error or any number of things. It's been estimated that one out of every three searches reveals a concern that must be corrected before the transaction closes.

We know from experience that these mistakes will not be cheap to remedy. When buying a home, buyers are often committing to pay up to $400,000 or more. To pay an additional premium to indemnify you against problems with a transaction of this size is a smart move.

A real-life example of the problems title defects can cause came when I recently worked with a man trying to sell his house to his children while he still lived in it. A title search turned up a $25,000 execution on the property, forcing the buyers to attempt to refinance. They couldn't move until the execution was somehow cleared. Basically, they were stuck. Had they purchased title insurance, it would have protected them against this loss.

As REALTORS®, you don’t want your clients to experience this – Title Insurance is the affordable safeguard to ensure a clean title and a smooth transaction for all.