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Do you need title insurance?

On Behalf of | Oct 20, 2023 | Commercial Real Estate, Real Estate |

Whether buying a new home or a commercial property, you should consider among the requirements to close the deal title insurance. It is virtually always a prerequisite when seeking funding to purchase the property. You need both “fee” title insurance to protect yourself and a “loan policy” to protect your lender from issues that may arise months or even years after closing the purchase.  

A title insurance policy covers up to a specific amount, often equaling the property’s value. It often serves as protection, covering losses in case of fraud, forgery, unpaid liens, taxes and other legal issues involving the property. You can also purchase additional coverage up to the future market value of the property.  A title search will help detect many problems before closing the purchase, but some might not show up based on the circumstances.  Title insurance is the only form of insurance which “looks backwards” and is “risk avoidance” insurance.  In other words, it turns up issues which have already occurred and insures that as of the date of closing, all is well with the property, with certain stated and clear “exceptions” to title.  

There are two variations of title insurance: one that protects the lender’s interest, and the other option protects the owner. This insurance requires a one-time premium, so it is helpful to consider the cost of a policy when planning to buy property.

Getting title insurance from legitimate sources

Just as you need to do due diligence on a property before making a purchase, the same goes for title insurance. Having coverage can be vital to property owners, so obtaining it from legitimate sources may be crucial. Providers of this policy type should have adequate licenses and credentials.

Before paying for a policy, it is best to crosscheck with the state’s list of licensed insurers. Doing so can ensure the provider’s rates and terms comply with state regulations. Taking these steps might seem excessive and tedious, but they could be necessary to avoid insurance trouble later when you need coverage for a title claim.

We generally use abstract companies which underwrite title policies through large title underwriters which will be in business for many years and have sufficient reserves to protect our clients in case there are claims.  Some people believe that with the internet and filing systems, there is no need for title insurance.  In our experience, obtaining a title report, with the information included in it, and title insurance is crucial to any real estate closing.  We would not represent anyone purchasing real estate without their obtaining title insurance.