“To be or not to be, that is the question.” This quote from Shakespeare’s “Hamlet” is certainly one of literature’s most thought provoking lines. To buy title insurance or not to buy title insurance might be one of real estate’s most provocative questions. 

For some buyers, title insurance may be another one of those misunderstood fees tacked on to the cost of buying a home. However, once understood, the necessity for title insurance becomes quite clear. The purpose of title insurance is to protect buyers and mortgage lenders against defects or problems with a title when ownership of a property is transferred.

Title insurance protects the insured parties from a financial loss related to the ownership of a property. If there is a mortgage involved, there are two title policies: a required lender’s policy to protect the mortgage holder and an optional owner’s policy. The fees for the lender’s and owner’s policies are a one-time cost. There’s no monthly fee added to the mortgage payment.

When a buyer purchases a home, they receive a deed at closing. This deed provides legal proof that the seller has passed to the buyer marketable ownership of the property, or title, to their home. Ideally, a home has what’s called a clear title. That means the current owner, who is selling the home, owns the property without any legal claims against it. 

Clear title is determined by a title company who investigates the property’s ownership history. If challenges are discovered during the title research, the title company will embark to clear up any problems. According to Jeremy Yohe, spokesman for the American Land Title Association, one out of every three searches reveals a title or public record defect that’s fixed before the transaction closes.

If, after researching the property, the title is clear, the title company contracts with an underwriting company to issue an insurance policy that will pay for legal defense should anyone challenge the title. 

Some would argue that if there are no outstanding claims or title defects, there’s no reason to purchase title insurance. This is when it’s important to remember the purpose behind insurance. It shifts the risk for full or partial financial compensation for the loss or damage caused by an event or events beyond the control of the insured party. 

Even with a clear title, undiscovered title disputes could arise after closing. These could include a mistake in the ownership history, an oversight by the title researcher, a previously unknown heir, unpaid taxes, forgery or a contractor’s lien against the property. There could be a pending lawsuit or legal judgment. A title issue could also arise as a matter of fraud — someone falsely claiming an ownership stake or lien.

A title defect that arises after a loan closing could, at the very least, mean a variety of prolonged legal matters and additional costs. Depending upon the severity of the defect, loss of the property and any money invested is at stake. Owner’s title insurance provides protection when such a defect arises. As the policy owner, a call to the owner’s title insurer will initiate the necessary legal defense to handle the claim. 

With a clearer understanding of what an owner’s title insurance policy covers and why it’s important for the buyer to have protection, the next step is understanding the costs. Remember, this is a one time cost; it’s not a monthly premium. 

The title insurance premiums are based on the purchase price of the home. For a standard owner’s title policy for a home up to $999,000 the cost is around $1.75 per $1,000. For a standard owner’s title policy for a home over $999,000 the cost is around $0.35-$1.75 per $1,000.

It’s important to note that these quotes are for standard title insurance. Enhanced title insurance policies include all the coverages of basic title insurance and adds protection against a few more risks for good measure including: liens against the property, zoning and and building permit issues, encroachments and subdivision violations. The added protection available from enhanced title insurance coverage is usually well worth the small added cost at the time of closing or final sale. For an enhanced owner’s title policy for a home up to $999,000 the cost is around $2.00 per $1,000. For a standard owner’s title policy for a home over $999,000 the cost is around $0.75-$2.00 per $1,000.

It’s worth mentioning that there is also a significant discount if an owner’s title policy and lender’s title are secured through the same insurer.

If you, or someone you know is purchasing a home be sure to talk with your trusted, expert Realtor and title attorney. They will help you better understand the lifetime benefits of owner’s title insurance and the relatively small one-time fee that will provide lasting piece of mind.

This column is produced by Rick Bisson and his family, who own Bisson Real Estate with Keller Williams Realty of Midcoast and Sugarloaf.

They can be reached at:
[email protected]