After completing thousands of closings, one question comes up time and again: “Why do I need title insurance? Won’t the lender’s title insurance be enough?”
The best answer starts with a quick refresher about what title insurance is, and what it does. Owner’s (Buyer’s) title insurance protects buyers from any title mistakes, or defects, that exist prior to your closing on the property. Lender’s title insurance protects lenders from the same past issues.
“Well,” some buyers wonder, “What kind of past issues could affect my ownership rights to the property I’m buying?”
Let’s say that an investor or homeowner is closing on a new property today. The title company ordered a title search, and it found no ownership disputes. But then, a year or two after closing, the heir of a previous owner of the property comes forward. He or she shows proof that they were the beneficiary that should have inherited the property. For any number of reasons, this evidence of inheritance wasn’t documented or recorded correctly, so it didn’t come up in the title search. The heir sues and wins, and the property is ordered to be given to the beneficiary. Now what?
With a title insurance policy in full force and effect, the owner of the property (or the lender) would not be responsible for these past errors. Instead, the owner/lender would file a claim, and the title insurance underwriter would make the owner/lender whole.
“But,” some buyers might say, “wouldn’t the title search reveal any possible issues or ownership disputes? Can’t I just trust the title search?”
Good question. Title searches are not title insurance policies. Title searches comb through all public records, meaning records/documents which are recorded. But, sometimes, because of fraud or mistakes in document recording or record-keeping, things slip through the cracks. Anything that is not recorded will not come up in the title search.
Lenders who issue financing on a property require that buyers obtain a title insurance policy to protect them from scenarios like the one above. If a buyer is court-ordered to deed the property to another person, the lender loses its collateral on the loan. To prevent this, lenders mandate that buyers purchase a lender’s title insurance policy at closing.
What about cash deals? Technically, there is no legal requirement to obtain title insurance when purchasing all cash. However, as you can see from the above example, an Owner’s title insurance policy is a small price to pay to ensure the protection of one of your largest assets.
At Butler Title, when our clients buy properties, we want them to be protected from all the potential unknowns. Contact us to learn more and see how we can help you with your next real estate purchase, sale, or refinance.
Butler Title is a full-service, attorney owned and operated title insurance agency. We keep it simple and focus on what we do best: real estate closings. From first-time buyers to local moguls, BT provides an industry-leading fee structure and unparalleled experience.
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