What we can learn from this case study . . .

You need to buy title insurance even if a title search determines that the ownership of a property you are acquiring is not in question. For­tunately, most lenders require borrowers to purchase title insurance. If your lender doesn’t, consult with your attorney about acquiring title insurance independently.

 

What Title Insurance Does

Title insurance protects you from title defects that were unknown to you at the time you purchased the property. “Title defect” means that your clear ownership of the property can be challenged by someone else who claims to own all or part of it. 

“Title” refers to the collected ownership records of a piece of real estate, including the transfer of any property rights and any loans that might exist in which your property was used as collateral. A clear line of title makes you much less vulnerable to ownership claims from other parties and to outstanding debts of previous property owners. Before writing a policy, a title company will check for defects in your title by examining public records, including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, and maps. The company will then defend in court any claims to the property covered by your policy, subject to certain limitations. If the company loses, it will pay you for covered losses (like the renovation expenses that Carla has already incurred), up to the amount specified in your policy.

Although they appear similar, there are two types of title insurance policies you should know about:

• Mortgagee policies remain in effect until your loan is repaid and you own the property outright. If you refinance, most lenders will require a new mortgagee title policy.

 

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