The title to your property is your legal proof of ownership. It’s very important that you have title, and title insurance protects you in the event there is a problem with the seller’s title.
Oddly enough, it isn’t always the case that someone selling a property has a clear title of ownership due to mistakes or omissions.
How can that happen?
Consider that a property may have changed ownership dozens of time. At any point during this chain of ownership, problems can arise. Such as:
- Long lost relatives or past owners appear with a claim to the property that supersedes yours.
- People fraudulently sell houses that don’t belong to them. For example, the husband of a divorcing couple forges his wife’s signature and absconds with the proceeds of the sale. Legally, the rights of the wife could be upheld and the property considered still hers, regardless of whether an unsuspecting purchaser acted in good faith to acquire it.
- Property is often used as collateral (security against nonpayment). If someone doesn’t pay back their loan, the lien holding lender has a legal right to sell off the property to get their money back—even if the house has sold to a new owner. Unless the debt is paid off and the lien released, the lien stays with the house even when it changes ownership.
- Lenders and county recorders are human, and like all humans, make mistakes. So it’s sometimes the case that there may be an unrecorded or unreleased interest in your property that wasn’t properly documented.
- An easement is a right to use the land of another for a special purpose. For example, the city may have plans to build a sewer line sometime in the future. If the sewer line runs through the back of your yard, and if the city has an easement, this might cause your backyard to be dug up, or prevent you from building a pool. So, you always want to know beforehand if anyone has an easement on your property before you buy it.
- State, local and federal authorities can obtain a lien on a home in cases where the owner has failed to pay taxes. If the owner sells the home without settling the tax lien, the tax authority can legally get the new homeowner to pay the original homeowner’s back taxes. And if the new homeowner fails to comply, they could lose their new home.
Don’t let any of this scare you, though. It’s easy to protect yourself from these types of mistakes, fraud and other complications related to obtaining a clear title to property. It’s why you need title insurance. It protects your claim to your property from potential problems caused by irregularities that may have occurred in the past. We all need insurance because the unexpected happens. The good news is that title insurance is one of the most affordable forms of insurance—with a relatively low, one-time premium–that protects you against legal problems that could cost you tens of thousands of dollars, not to mention the possible loss of your home from the day of settlement, into the future.