The Dangers of Not Having Title Insurance

Most buyers acknowledge that when they are buying a home title insurance is a vital part of the transaction. Title insurance protects the buyer from any unanticipated property issues. Are there risks if title insurance is not bought? Absolutely.

Buying a home is one of the largest investments anyone will probably ever make. You are prepared, you have stayed within your budget, the home has been inspected and the home insurance is locked in. What’s the worst that could happen without title insurance?

• Unknown Liens on the Title: Occasionally businesses will file a lien against a home, which means they are legally entitled to any proceeds made in the sale of the house to settle a debt the seller owed them. This lien is attached to the home, not the seller, so it will end up being the buyer’s issue. Examples: contractor’s fees, taxes, and child support. A title company will do a search on the home to check for any of these claims.
• Unrevealed Heirs: You can lose your home, quite literally. Upon the death of someone, the ownership of their home can end up in the hands of the heirs either by direction of a will or in the absence of a will, to the closest living relative in accordance with the county/state law. However, there might be heirs that are missing or unknown at the time of death that could appear years later and claim part ownership and will ask for financial compensation for their portion of the property. Or, they can claim that the home is theirs. With title insurance, the new owners will be given money for their legal bills if the issue ends up in court, plus insurance will pay any compensation they might be required to give the missing heir.
• Encroachment Issues: Encroachment occurs when someone, such as a neighbor or a construction company, takes over part of your property without permission or proper legal notification. This happens due to an inaccurate survey or otherwise. Title insurance covers these unknown risks that are not agreed to in the sale, but if discovered at a later date will interfere with the title.
• Identity Theft and Fraud: Title insurance provides a clear chain of ownership for the home. The real estate industry experiences millions of dollars worth of fraud every year. Documents such as deeds, transfers, and even wills are forged. This will all be covered by a title policy.

The Bottom Line: Essentially, there are no perfect titles. Government restrictions, utility easements, claims of adverse possession, and tax liens are examples of limitations or defects that can impact a title. Title searches will uncover a lot of these limitations or defects. However, there are some that may not be discovered in even the most diligent title search. Title insurance protects you from these risks.