Why do you need title insurance?

An owner's rights to property - which often involve family and heirs - are sometimes obscure. There may be other parties (such as government agencies, lenders or private contractors) who also have rights to the property in the form of outstanding claims. How can you be assured that you will be the true owner of the property you're buying? Simply purchase an owner's title policy.

A lender goes to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower's ability to repay the loan. Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.

But, this policy only protects the lender's interest. It does not protect the borrower. That is why a real estate purchaser needs an owner's policy, which can be issued at the same time as the loan policy usually for a nominal one-time fee.

If the status of title is cleared before you buy, why do you still need title insurance?

Protection against future claims is provided by a title insurance policy which is issued after your transaction is complete. Policy terms and conditions determine the extent of coverage provided. This insurance policy insures the condition of title. Separate policies are usually issued to protect the owner's and the lender's interests.

ALTA Brochure

Download ALTA's Brochure - Why Do I Need Title Insurance? (PDF File - 564 KB) - Explanation of how title insurance works to protect home ownership.