Q: If owners title insurance is so important, why isn't it required by the lender during the purchase transaction?

A: Because the lender is protected by a similar policy called "lenders" title insurance. That fee is included in your closing costs, and is a mandatory part of every new loan closing.

Lenders allow you to decide if you wish to obtain your own coverage. If you do, it is least expensive to purchase at the same time the lenders policy is issued. The "simultaneous issue" rate is about two dollars per thousand of purchase price.

Q: How far back does the lawyer have to research the ownership of the property in order to issue a title insurance policy?

A: Typically, in a purchase setting, the search will go back for fifty years. If this is a refinance situation, the attorney usually only goes back to the most recently issued first mortgage.

Q: If I buy a house that was built more than fifty years ago, am I still protected?

A: Yes. The title industry has come to the conclusion that if anyone has a claim against your property and does not assert that claim in fifty years, there is a pretty good chance that they never will. In any case, your owners title policy covers you no matter how old the house (or the land under it) may be.

Q: What about raw land? If I am buying a lot in a subdivision or some land out in the country with only trees on it, do I still need owners title insurance?

A: Yes. Whether or not the property is improved, the chance for title problems still exists.

Q: If I am buying a house and only putting down a small downpayment, why should I pay for title insurance? I have almost nothing to lose if the house were to be lost in a title challenge. Isn't that right?

A: No, you stand to lose plenty. It is true that the lenders title insurance company would pay off the loan if the house was lost completely. But then the title insurance company would still expect you to pay the debt you agreed to pay when you signed the note and security deed. While the security deed wouldn’t be worth anything, they could still sue you under the note.

Q: Has anything like that ever happened, where the owner lost their house and still had to pay for it as well?

A: A complete and total loss is rare, but it has happened. In the absence of an owners title insurance policy, the person who signed the note remains personally liable for the debt.

It's the same as if you owned your home, but allowed your fire insurance to expire. If the house burns to the ground, you still would owe the lender for any loans against the house. But in that case, you would still have the land.

Q: What would be an example of a title problem that might cause me to lose my house entirely?

A: Let's say you buy a house from Mr. Seller, who apparently paid cash for the house last year. The title search reveals a recorded deed from the previous owner, and that the existing loan was marked satisfied at that time.

The truth is that Mr. Seller simply rented the house from Mr. Owner, who lives out of state. Mr. Seller falsified the deed and the loan satisfaction. Because he is paying rent to Mr. Owner, no one complained. Then you come along and buy the house from Mr. Seller, who does not own it.

Eventually, Mr. Owner returns to check on his property, and finds you living in it. You are holding a worthless warranty deed signed by Mr. Seller, and Mr. Owner has you evicted.

In this scenario, if you had failed to purchase owners title insurance, you would lose the house and still have to pay for any loan you used to purchase it.

Q: Wouldn't I have recourse against Mr. Seller?

A: Yes, but Mr. Seller already thought of that, so he continued making rent payments for a few months after you purchased to give him time to move to another city and change his name and his identity.

Q: So what is the warranty in a warranty deed? Is that worth anything?

A: Yes, the warranty is from the seller to you that he owns the property and that he has the right to sell it to you. He also warrants that ownership forever.

Unfortunately, that warranty is only as good as the person who signed it. If that person is dishonest, or dies, or cannot be found, then you would likely be unable to collect from them.

Q: Isn't that type of activity a criminal offense?

A: Yes, but that won't matter if the criminal cannot be apprehended.

Q: Realistically, how often do serious title problems occur?

A: Not very often, but when they do, then tend to be very expensive.

The important point to remember when buying a home is that the lenders title insurance policy offers you no protection. That fee is for a policy which only protects the lender against title challenges.

Again, my strong advice is to purchase owners title insurance every time you buy any type of real estate. It will always be available from your closing attorney.