If you are in the process of buying real estate, you either know or are learning that you should purchase title insurance. You may be asking, what is title insurance? To answer this question, let’s start with explaining what makes up the title to real estate. When you purchase real estate, you are buying title to a piece of the earth’s surface. This title is conveyed to you by a deed from the seller. After closing your deed is recorded in the public land records of the City or County where the property is located. This deed together with all prior deeds in the history of ownership make up the "chain of title" to the property. Each link in the chain represents someone back in time who owned the property. This fact results in a variety of possible problems regarding the authentic title. The first is whether some person back in the chain still has some claim to ownership. For instance, it might be that along the way one person in the chain never relinquished (or "conveyed") his or her full ownership interest to the next owner. Or, when a prior owner died, maybe one of the heirs was missing at the time and/or the other heirs intentionally omitted the missing heir from estate filings. If, somehow, such an heir learns of his or her ancestor’s death, that heir can then file a lawsuit against the current owner to obtain payment for his interest in the property. Or, maybe, there was a fraudulent conveyance of a property interest, meaning that a person represents himself to be the owner and forges a deed to sell the property in a scheme to defraud the buyer and make off with the purchase money.

More frequent than fraud or missing interests are innocent mistakes and clerical errors that result in title defects. For example, the description of the property in a deed could be erroneously transcribed, so that the deed does not fully or accurately describe the property being conveyed. Or maybe a recording clerk erroneously indexed a lien or judgment that was intended to be filed under the name of the owner, but due to the Clerk’s mistake (e.g. misspelling the owner’s name), a title examiner may never find it. Later the lienholder might seek to enforce the improperly indexed lien against the property. In such cases no matter how careful the title examiner is, or how skillful he or she is in the detective work required to examine the public record of deeds, the error may never be discovered in a title examination. Worse, the above is just a sampling of actual problems that have resulted in buyers having defective title to the property they have bought. This risk in buying real estate can be reduced by a careful title examination, but it can never be totally eliminated. Though relatively rare, these problems are real and when discovered can be enormously complex and expensive to resolve with, in the worst case, the current "owner" losing title and all funds invested in the property.

This is the point where title insurance provides the saving solution. By spreading the risk over a large number of real estate purchasers, title insurance companies can generally guarantee that the buyer’s title is protected against all the claims of any other party in the world. This is important. No prudent purchaser of real estate would go without the assurances provided by owner’s title insurance. For one thing, when someone sells property, a general warranty deed is usually required to convey the seller’s interest. A general warranty deed is a guarantee by the seller that the title is clear and good. If the seller purchased owner’s title insurance when he bought the property, he or she can safely sign such a personal guarantee, knowing that the title insurance company is ultimately responsible for all the expenses and losses related to any subsequent dispute regarding title.

Title insurance, which is purchased one time, usually at closing, comes in two forms: lender’s insurance and owner’s insurance. Only the latter protects the buyer. The lender’s insurance only protects the lender and then only up to the amount of the outstanding balance on the loan. Moreover, when the loan is paid off that coverage ends. In contrast, owner’s insurance extends for life, even after the property has been sold. This is important because even after the property is sold, the seller can be brought back into a lawsuit over the title. This is usually a surprise to the seller, but the solution is to call the title company and have them defend the suit and cover the expenses and losses involved under your owner’s title insurance.

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