Title Insurance - Why do I need it?

Title Insurance - This is actually something that alot of home buyers have no idea what it is and why they need it.   It is quite confusing to most and to tell you the truth most don't even realize who their title insurance company is or why it exists.  Do you? 

What is Title Insurance?  Title Insurance is protection on real property itself.  What that means is the property might have changed ownership more than a few times over the years and if a lien is on the actual title then it is protected.  HUH?  Let's say that there is a tax lien on the property when you are buying it.  Before the closing this most likely will be picked up.  It relinquishes the new buyers to have to pay the back taxes on the property.  Once the title is clear - you are able to close.

How long does Title Insurance last? - When a new buyer purchases the property the title insurance expires that day but goes BACK to previous owners.  So, its not a protection on YOU but rather the property and the new lender.

Is it needed?  Yes!  If you are taking a mortgage, which 99% of buyers are using lenders  - then you MUST have title insurance.  But here is the kicker - it is only on the amount the new buyers are mortgaging.  It does not cover for any equity that is beyond the mortgaged amount.  So, if a new buyer is putting down 50% and mortgaging the balance then up to the mortgaged amount is covered and the lender is the one protected - not necessarily the buyer. 

When do I pay Title Insurance?  The day of the closing.  It will be noted in your closing costs but it gets paid the day title transfers (closing).  On your settlement charges of your HUD1 form it will be noted on there too. 

How often do I have to pay Title Insurance? Only once.  But if you refinance the banks will pull title and make sure that there are no new liens on the property. 

Where and how do I obtain Title Insurance?  In the state of NY most likely from the lender or your attorney.   

When people say "Title is clear" - what does that mean?  Most likely the title company searched for a chain of events - such as:

1. Marriage records.
2. Death certificates.
3. Tax sales (foreclosures).

and they then looked back to see if  there are any of the following:

1. Incorrect signatures on documents.
2. Forgery, fraud.
3. Defective recordation (Human Error).
4. Restrictive covenants 
5. Encumbrances or judgments

Once all the above has been satisfied or "cleared" then the new buyers are "Clear to close".