Title Insurance 101 

To home buyers already overwhelmed with closing documents, title insurance can seem like a foreign language. Clint Fagan, an attorney with Transformation Title & Escrow, explains the fundamentals of title insurance and why the policy is essential to a worry-free home buying process.

Unlike other types of insurance that protect buyers against future occurrences, title insurance protects against past events. “Specifically, title insurance protects the buyer against loss resulting from previously unreported land title defects covered by the policy, such as forgeries, claims by missing heirs, recording errors, etc.,” Clint says.

Property title defects can include…

A homeowner adding on home improvements, like a pool, and failing to pay the contractor. The contractor can then file a claim against the property, and that claim must be paid before the lien is released.

A homeowner not paying real estate taxes, causing the taxing authority to file a lien on the home. The taxes must be paid before the lien is released.

The previous owner incorrectly stating his or her marital status, resulting in a possible claim by a legal spouse.

Title insurance protects against these issues, whether they come up during the closing process or afterwards. “If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense—and pay all court costs and related fees,” Clint says, adding that “if the claim proves valid, you will be reimbursed for your actual loss up to the face amount of the policy.”

What is the difference between title and homeowner’s insurance?

Homeowner’s insurance protects against fire, weather, theft, and any other kind of property damage or loss. Title insurance insures the buyer against losses from unreported issues that happened before they bought the property. The buyer pays the one-time title insurance premium when they close and pays their homeowner’s premium each year.

Is a title commitment enough for my closing?

No. A title commitment is the underwriting portion of the title insurance policy. It is the examination done, usually by an attorney, to uncover all the defects. “The title commitment is the foundation for the title policy and you can’t have one without the other,” Clint says.