Puzzle piece standing up that says insurance

Do I Have To Buy Title Insurance?

First-time home buyers run into so much legal and industry-specific mumbo-jumbo that it can be hard to understand the terms. All you want is to move into your dream home, but you’re stopped cold by the prospect of signing papers you don’t know anything about. You have something of an idea of what they mean from your. You’ve already figured out your financing, your offer has been accepted, and now you’re going to closing. You’re all set, but you’ve completely forgotten about title insurance.

What is Title Insurance?

When you buy your house, you want to know that the property and the house have no claims on them. The title search will go back as far as the records go back to make sure the owners really owned the property, or that contractors or missing heirs to the property don’t have claims against it. People make mistakes, though, which could cause a claim against your property. A tax payment might not have been recorded or a deed to the property could have been forged. Title insurance protects the lender if something arises, just like an owner’s policy protects you if something arises.

Most lenders simply put the paper in front of you, ask you to sign it, and then hold out their hand for the check. Write it. The policy is usually written for the cost of the mortgage and dates from the time the mortgage was taken out back into infinity. If a problem does arise, the lender will go to bat for you, and the policy will pay for it. You won’t be out a penny, and you’ll still have your house.

What If I’m Building a House?

You’ll know the house is clear, but what about the land? One hundred years ago, did Jones give the land to Andrews in payment of a debt? Was the transfer legally recorded? Fifty years ago, did Andrews’ children sell the land, because they needed the money? Did the new owners have the sale legally attended? Perhaps they transferred the property to their children, who didn’t have to pay taxes on it. That’s one hundred years of records that need to be checked. You’ll want to make sure your new house doesn’t get taken away from you if there is a problem with those old records.

When Would I Not Need Title Insurance?

Your parents have debilitating diseases and need full-time care. You decide together to put them into a nice retirement home where they can be looked after. Your parents sign a gift deed transferring the house and property to you. Since you know from their papers that the property is clear, you’re safe in not taking out title insurance.

In most cases involving property sales, most people just buy the title insurance, whether they think they need it or not. You should, too.

Last Updated: September 17, 2014