Occasionally a client will ask you what title insurance is. As a QLMS partner you surely have a working knowledge, but this article provides a definition (with examples) for those who want a refresher.
Title Insurance is Ensure-ance
Anyone who purchases a home receives a Title—a claim of ownership to that property—which is physically represented with a written deed. A Title allows the buyer to live in, sell, or modify a property because it legally belongs to them. Title insurance ensures that there are no outstanding liens on the property, no fraud or errors within the history of ownership, and ultimately affirms that your client’s Title will be defended if challenged.
How Title Insurance Helps
Here are a few examples you can use to illustrate how title insurance helps a homebuyer:
The previous owner hires a painter to spruce up the living room, but neglects to pay for the service. That painter files a lien against the home until the debt is paid. The previous homeowner sells the property to your client and they neglected to obtain title insurance. Your client is now responsible for paying the painter, because liens are tied to the property itself. Title insurance would reveal an outstanding debt before closing and protect them from that burden.
Your client purchases a property and the seller dismisses the need for title insurance. “Why wait weeks for middlemen if you have the cash and I have the property?” the seller said. Everything seems perfect: the seller gives them a deed, hands over the keys and waves goodbye. Half a year later someone shows up at their door claiming they just purchased the home—and shows the client an identical deed. Because they did not get title insurance, they have no more proof of ownership than the person who just showed up at the door. Title Insurance checks if the seller can actually sell the property and whether the deed is legitimate.
The state sells your client a property they obtained from a deceased previous homeowner. They decide not to obtain title insurance because the property comes from the government rather than a mysterious stranger. Years later the deceased owner’s will is found and grants the property to their child. The child files a claim to obtain the property. Without a title insurance company to back your client’s claim to the property in court, there is a strong chance it will be given to the family of the deceased.
Get Your Own Policy
There are two main types of title insurance policies: lender’s policy and owner’s policy. A lender’s policy is only issued to mortgage lenders to cover losses from unforeseen liens, defects, fraud etc. It does not protect the client (buyer) from aforementioned issues. Don’t confuse the two and accidentally deny the client their own policy in the belief that a lender’s policy covers everyone! Be sure the client gets an owner’s policy, which protects the buyer if an issue occurs.
Either the seller or buyer (or an agreement between both) chooses which title company to use, depending on who pays the one-time fee. Use this opportunity to suggest title companies that offer superior service and coverage, like the team at Amrock. After explaining the benefits of title insurance and helping your client choose the best source, they will surely thank you.