Consider Title Insurance For Yourself

In terms of real estate, a title is the piece of paper that proves your house is really your house. It is your deed.

That piece of paper is so important that before you get it the lender will insist on a title search. And just in case that search misses something, your lender will also insist that you buy title insurance to protect his or her investment. Even though it is not required, you should also consider purchasing title insurance to protect yourself.

A title search is a records search to see who actually owns the house. Does the seller have a clear title to it? If two people own a home, for example, both must agree to sell it. If one tries to sell it while the other does not want it sold, the whole matter could end up in court.

A side note: If you bought the house with someone else whose name is still on the deed, such as an ex-spouse, that person has a say in whether or not the house can be sold. Make sure the house is completely in your name or that the other deed holder agrees to the sale before you try to sell it.

Another question to be resolved in a title search is if there has ever been a dispute over who owned the property at any time since legal ownership was first established.

Liens can also complicate a title. Let's say the homeowner has been sued and the person suing has a lien against the house. Let's say, for example, a contractor remodeled a bathroom and was not paid for the work.

That lien will have to be settled before the property can be sold. The IRS and other government agencies often file liens against property to collect back taxes or fines. What usually happens is that the lien holders get paid first out of the proceeds of the sale.

In theory, a title search establishes that no one else can claim to own, or have any direct financial interest in, a piece of property. Sometimes, however, claims don't show up until years later. That is why title searches routinely go back to the first time that piece of property was sold.

Consider yourself Owner 1. The person you are buying it from is Owner 2. The person he bought it from is Owner 3, and so on. Let's say there was a problem with Owner 4 or 5, or anywhere down the line.

Now, years later, someone comes forward with legal proof that there was a problem when the home was sold from Owner 6 to Owner 5, or from Owner 5 to Owner 4, and challenges your right to the property.

Problems also can arise after a major disaster, such as a fire, flood or earthquake. In some cases, the municipal records themselves are destroyed. How do you prove ownership then? What do you do when the records are missing or in dispute?

That's when your title insurance becomes involved. At that point it becomes the insurance company's problem, not your lender's, and not yours if you have purchased title insurance for yourself.

Two of the most common types of title problems that occur have to do with inheritances and divorces. In cases of inheritance, a will could be challenged or contested, or another legal heir could appear years later, or there could be proof that fraud was committed at some point during or before the settlement. Perhaps someone passed him- or herself off as an heir who wasn't really an heir at all.

In the case of a contested divorce, separation or unhappy marriage, one spouse may use a "friend" to impersonate and forge the other spouse's signature, and then take the money and run. When the legal spouse or ex-spouse finds out the house has been sold, it becomes the current owner's problem. There have been cases when spouses coming back from long business trips, hospital stays or overseas assignments have discovered that their house has been sold and their spouse has left town with all the money.

There can also be problems when elderly parents are moved into a nursing home and their children decide to sell the house, especially if the parents, or even all of the children, are unaware of what is going on.

The fact that this could have happened six weeks, six months, six years or even 60 years ago does not change things. The court is concerned with legal ownership-- not occupancy. The fact that you paid for the house doesn't matter if the person who sold it to you had no right to sell it. Nor does it matter that the person who sold it to you thought that he/she had a right to do so.

The court's job is to determine who the last legal owner of the property was. Once that is settled the lawyers can step in and sue and countersue until the problem is resolved.

As long as you have title insurance, it becomes the insurance company's problem. You could think of title insurance as another way of saying "It's not my problem."

Buying title insurance for a home purchase to protect yourself from loss is a personal decision, but the pros and cons should be considered thoroughly before making up your mind.

Bill Steele is financial editor of, a national publisher of mortgage rates and information.

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