Title Insurance

What is title insurance?

Title insurance protects real estate buyers and lenders against defects in ownership that surface after closing: forged deeds in the chain of title, unknown heirs claiming the property, unreleased mortgages and contractor liens, recording errors, and fraud. Unlike other insurance, it covers the past rather than the future, and a single premium paid at closing lasts as long as you (or your heirs) own the property.

Every purchase involves two potential policies. The lender’s policy, required on any financed deal, protects only the lender’s loan balance. The owner’s policy, optional but strongly advised, protects the buyer’s equity, without it, a title defect could cost you the property while the lender’s policy makes only the bank whole. Premiums are regulated by state and typically total 0.5% to 1% of the purchase price for both policies combined.

Before issuing a policy, the title company searches public records and produces a commitment listing exceptions, items the policy will not cover, such as recorded easements and restrictions. Reading those exceptions is an underrated due diligence step: a utility easement across the backyard or a deed restriction against rentals matters more to an investor than most inspection findings. Cash buyers, who face no lender mandate, still have the same exposure to title defects and generally should not skip an owner’s policy.

Worked example

Two years after buying a rental for $220,000, you receive notice of a $28,000 contractor lien recorded against the prior owner but missed in the title search. Because you bought an owner’s policy (roughly a $1,200 one-time premium at closing), the title insurer defends the claim and pays it off, without the policy, the lien would be your problem to clear before any refinance or sale.

Frequently asked questions

Is owner’s title insurance worth it if the title search was clean?

Yes, because the policy exists precisely for what searches cannot find: forged signatures decades back, unknown heirs, clerical errors in county records, and fraud. Claims are uncommon but catastrophic when they hit, potentially the entire property. For a one-time premium of a few hundred to a couple thousand dollars protecting your full equity for as long as you own the home, it is among the most asymmetric insurance buys in real estate.

Who pays for title insurance, buyer or seller?

It varies by state and local custom. In some states sellers customarily pay for the owner’s policy (the logic: they are warranting clean title), while buyers pay for the lender’s policy; in others buyers pay both, and everything is negotiable in the purchase contract. On a refinance, the borrower buys a new lender’s policy, often at a discounted reissue rate, while the original owner’s policy continues unchanged.