What is Title Insurance?
Title insurance is a one-time policy paid at closing that protects against losses from defects in the property's title — undiscovered liens, errors in public records, forgery, undisclosed heirs. Required by lenders and prudent for cash buyers.
Two policies are typically issued: a lender's policy (required, protects the lender) and an owner's policy (optional, protects the buyer). Cash buyers pay only the owner's policy; financed buyers pay both. Costs: 0.5-1.0% of purchase price depending on state.
Title insurance differs from most insurance: it covers events that occurred BEFORE the policy was issued (undiscovered title defects) rather than future events. The title company's job is primarily to search the chain of title before closing — the insurance backstops their search.
Skipping owner's title insurance to save 0.5% is one of the more common false economies in REI. A single undiscovered IRS lien from a prior owner can wipe out years of returns.
Concepts that connect.
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