The Purpose of Title Insurance in a Real Estate Transaction
Black and Davison
When you are buying or selling real property, one of the things your agent or attorney will typically discuss with you is the title insurance. You may think that, if you have a valid deed and have properly recorded it, you don’t have any concerns about title. That may not be true.
Understanding Title Insurance
Like other forms of insurance, title insurance is designed to protect you against financial loss. The financial loss that can be covered by title insurance relates specifically to title problems that arise and can include a variety of issues, such as:
- Financial loss caused by the fact that the seller (transferor) did not legally own the property when it was sold
- Financial loss resulting when there are outstanding liens on the property, including unpaid mortgages or other encumbrances that give creditors the right to take the property through a foreclosure action
- Financial loss caused by interruptions in the chain of title, including instances where the owner of the property died, but the property was not legally transferred through the probate process
- Financial loss caused by tax liens
If you have a policy of title insurance in effect and a lawsuit is filed related to any of the above issues, the title insurance company will be required to defend the action and must satisfy any judgments that arise. Without a policy of title insurance, your only recourse in such a situation would be to sue the other party to the transaction. That party may be unable to satisfy any judgment you obtain.