After having been to several hundred closings, I still have not received a fully understandable answer for why title insurance can be critical. Don’t get me wrong, I completely understand exactly what it is and what it does, however, to explain it to a buyer can be a little bit tricky for attorneys.
Attorneys are required to disclose that they have a vested interest in selling title insurance. They go on to explain that it is an insurance policy that protects items that may have not shown up in the title search, which may cloud ownership. When you are obtaining a loan there is a certain portion of the property that you do not own. This is called the lender’s portion of the property.
- You put down 20% as a down payment
- This means you are obtaining an 80% loan from the bank.
What this means with regards to title insurance is:
- As of the date of closing, the bank owns 80% of the house.
- The bank will require you to pay for title insurance based on their 80% ownership.
- The only way to get around this, is to not obtain a loan on a property.
- The remaining 20% is your equity in the property.
- You can choose to ensure this portion or not.
While it is difficult for an attorney to explain exactly why it’s good for you, we as agents understand that it is a very good decision. If someone were to knock on your door and claim that they own the house, it is very likely you would need to hire an attorney. The few hundred dollars you would pay for title insurance will be quickly absorbed by that first meeting with your attorney. While this is certainly not very likely, other things have happened similar to this that have proven that title insurance was not only smart, but it was necessary.