Title Insurance: What it is and why you need it

by Kristy Como Armand

Title insurance is one of those mysterious fees buried inside the pile of paperwork you receive at your mortgage loan closing, but what is it?

“Title insurance is a form of insurance homeowners are required to have in nearly all purchase and refinance transactions,” said Ron Richard, owner of Landmark Title Services of Lake Charles. “Unlike other forms of insurance, title insurance protects borrowers and lenders from issues that occurred in the past, rather than issues that may arise in the future.”

There are two types of title insurance: a mandatory lender’s policy that covers the lender, i.e. the mortgage company, and an optional—but highly recommended—owner’s policy that covers the homeowner. The lender’s policy only protects the lender in the amount of the loan, while the owner’s policy protects the owner from any potential legal issues that may arise relating to the ownership of the property. In addition, the lender’s policy expires once the mortgage is paid off. Both types of policies—lender and owner—are typically offered as a bundle.

“A title is a document that states the legal owner of the property,” said Richard. “It protects both mortgage lenders and owners against past defects or problems with the legal ownership of a property, including things like forged documents, lien claims, undisclosed easements, ownership claims made by others and mistakes from the previous title agency.”

That’s a lot of vague terminology, so Richard provided some examples of the potential scenarios that, should they arise, title insurance would provide protection:

\You bought your house last year from a seller who inherited the property. However, you find out later that the seller has an undisclosed step-brother who also owns half of the property, according to the will. In this case, title insurance would help you offset the legal costs of challenging his claims to your property.

You bought a house, but it turns out that the seller had an overdue bill on a previous home addition. Now there’s a contractor’s lien on the property from several years ago that predates your mortgage. Without title insurance, you’d be held liable as the current homeowner.

Part of your property turns out to be inaccessible due to a mistake by a past surveyor. Your property records are different than expected and the value of the home is affected as a result. Without title insurance, you wouldn’t be compensated for the financial loss.

So how much does title insurance cost? Richard says this depends on the specific services required during a mortgage process, but these typically include title service and settlement fees. Title insurance is a percentage of your purchase amount and is regulated on a state-by state basis. The cost is called “title insurance premium,” and is a one-time cost paid at closing. Settlement services fees include the fees that are incurred during closing such as the cost of escrow, wire fees, activities involved for underwriting the title insurance policy, such as the title search fee and the cost to resolve issues. Settlement service fees also vary by state, usually under $1,000.

“Cost aside, title insurance can potentially help you avoid a financial nightmare and legal battle later,” adds Richard. “It is truly an investment that no homeowner can afford to do without.”

For more information or questions about title services, visit www.landmarktitleserviceslc.com, or call 337-477-8782.