What is a Title Insurance and why do I need one?
Title insurance is a form of indemnity insurance mostly found in the United States, which insures against financial loss from defects in title. They guarantee a clear chain of title, which means the person who is selling the property has the legal right to do so. Title insurance is about protection; protecting your home, your family, and yourself. The insurance will defend your title – no cost to you – will correct the title if possible and/or pay you for the loss, if the title cannot be cleared.
How much does it cost: The State of Florida has set the fee for the title insurance and is based on the value of the property. You also may qualify for a reissue rate, if the prior owner has owned the property for less than 10 years and had purchased a title insurance. The title insurance premium is only paid once (at closing)!
The title insurance insures against losses caused by title problems that have their source in past events. It protects against the following causes of loss, none of which is disclosed by the most carefully prepared title search: Forgery, fraud, false affidavit, infancy, insanity or incompetency, bankruptcies in other jurisdictions, false impersonations, undisclosed or missing heirs, after-born or adopted children, perjury or claims arising by reason of foreign divorces, to name a few.
Most title insurances are underwritten in the United States. In many countries in Europe there is no title insurance needed, as the legal description in the court records are guaranteed.
There are two forms of insurance: lenders insurance and owners insurance. While the owners insurance is voluntary – but I highly recommend to get one – the lender insurance is required, if you finance the house with a mortgage.
If you refinance the loan, you have pay for a new lenders policy – as the insurance is only good or the life of the loan – but you do not need to purchase another owners policy, which is in effect as long as you or your heirs are the owners of the property.
I have experience a situation I like to share: I closed a property for an investor and when he went to the property three days after closing the property was yellow taped: “do not enter by court order”. We found out that this property was attached to a law suit against the prior owner for punitive damages. We were lucky that the property was legally recorded hours prior to the judge attaching this property for collateral. We did not need to use the title insurance, but we were relieved that we would have been protected by our owner’s policy!