Why Every Homeowner Needs Title Insurance

What is Title Insurance?

Title insurance provides coverage for hidden risks to your property's title. Your title represents your legal ownership of the property, including any rights or interests associated with it. 

Before you close on the purchase of your home, your title company conducts an extensive title search and examination. This process involves a comprehensive review of public records to establish a clear chain of title and ensure that your title is free from encumbrances such as judgments or liens.

However, some risks remain hidden - even with the most thorough title search. Title insurance protects you from these unseen threats that could jeopardize your ownership rights. Common hidden risks include forgery or fraud in title documents, errors in public records, and undisclosed liens.

Title insurance differs from other types of insurance in that it protects against past events rather than future occurrences. If a covered claim arises, your title insurance company will defend your title and compensate you for covered losses up to the policy limit. Once you purchase a title insurance policy, it remains in effect for as long as you or your heirs own the property, subject to the policy's terms and conditions.

There are two main types of title insurance: lender's title insurance and owner's title insurance. Lender's title insurance is required by mortgage lenders and protects only the lender's interests in the property. This coverage does not extend to homeowners. 

On the other hand, owner's title insurance protects homeowners and is available in both standard and enhanced policies. Standard owner’s title insurance protects homeowners from the most common hidden risks to their title. The enhanced policy provides additional coverage for less common risks, including some risks that may occur after the policy has been issued.

Reasons Why Every Homeowner Needs Title Insurance

Owner's title insurance is an optional purchase at closing, but that doesn't mean passing on the coverage is a good idea. While it may be tempting to skip this additional expense, understanding the protection it offers can help you make a more informed decision. 

Reason #1: Title Insurance Protects You from Unseen Risks

Before you can close on your home, your title company will present you with a clear title. This means that any known issues or defects with your home’s title will be removed. However, unseen risks may still remain. These unseen risks can include:

• Errors in public records. These unintentional errors may include documents filed incorrectly or in the wrong county, or even simple clerical mistakes like a mistyped lot number. 
• Forgery or fraud. By its nature, fraud can be difficult to detect. For example, forged signatures on deeds usually appear legitimate. 
• Missing or undisclosed heirs. Individuals with a legitimate claim to the property may surface after the sale, including unknown children from a previous relationship or family members who were thought to be deceased. 
• Undisclosed liens. In some cases, liens can be applied to a property after the transaction is complete.

Title insurance provides a safety net against these hidden risks. If any of these issues impact your property, you can file a claim with your title insurance company. They will cover the financial costs associated with resolving the issue, including legal fees. This hands-off approach for the homeowner means no more headaches or worries about potential title problems that could surface long after your purchase. 

Reason #2: Title Insurance Ensures a Clear and Marketable Title

When the time comes to sell your home or property, having an owner’s title insurance policy can minimize the risk of issues or delays with your transaction. After you have a signed purchase agreement, the title company handling the transaction will perform another title search. If a defect is found with your title, your owner’s policy will help you proceed with the sale with minimal delay. 

For example, the title search may reveal a previously undiscovered lien from a contractor who claims they were never paid for work done by the previous owner. Without title insurance, this lien could derail your sale and cost thousands of dollars in legal fees and payments to clear the title. However, an owner’s policy allows you to file a claim and let the title company handle the issue, allowing your sale to proceed smoothly.

Reason #3: Lender's Title Insurance Doesn't Cover Homeowners

While mortgage lenders typically require a lender's title insurance policy (also known as a loan policy), it's important to understand that this policy only protects the lender's interest in your property. As a homeowner, you need separate coverage to protect your own interests. 

Don't make the mistake of thinking the loan policy protects you – it doesn't. The lender's policy only extends to the homeowner if the interests intersect. For instance, if a title issue arises that affects the validity of the entire property transaction, both policies might come into play. 

However, many title issues could affect you as the homeowner without impacting the lender at all. An example might be a boundary dispute with a neighbor or an easement issue that affects your use of the property but doesn't diminish its value from the lender's perspective.

Remember, you're not getting double-charged for title insurance. The lender's policy and the owner's policy are two separate forms of protection, each serving a distinct purpose and safeguarding different interests in the property.

Reason #4: A One-Time Premium Provides Lifetime Coverage

Unlike other forms of insurance that require annual or monthly premium payments, title insurance is unique in that it's paid for with a one-time premium at closing. In Kentucky, title insurance rates are regulated by the state insurance commission, with one rate for standard policies and another (typically about 10% more) for enhanced owner's policies. This premium is part of your closing costs.

What makes this even more valuable is that the coverage lasts for the entire time you or your heirs own the home. Whether you own your home for six months or sixty years, the price and the coverage remain the same. For example, imagine discovering ten years after purchasing your home that a previous owner's ex-spouse is claiming partial ownership due to an improperly executed deed. Your title insurance would cover the entire cost of resolution, including legal fees and any potential restitution payments.

It's important to note that title insurance is not the same as homeowner's insurance. While homeowner's insurance protects against future events that could threaten the structure of your home, title insurance safeguards against past events that could threaten your ownership.

Reason #5: Title Insurance Gives You Peace of Mind

Title insurance offers homeowners lasting peace of mind by protecting their property rights and their investment. This coverage shields you from unforeseen title issues that could emerge years after your purchase. Enhanced title policies offer additional security by covering post-policy fraud and forgery, providing protection against future threats to your title. This comprehensive coverage allows you to enjoy your home without worrying about potential title disputes.

Moreover, title insurance safeguards what is often your largest financial investment. Home ownership comes with many responsibilities, but with title insurance, you can cross title-related concerns off your list. 

Purchasing Title Insurance

Given the potential for hidden risks to lead to substantial financial hardship or even loss of the home, the question becomes: why wouldn't you protect it? Title insurance allows you to focus on enjoying and creating memories in your home rather than worrying about hidden threats.

While purchasing owner's title insurance does come with a cost, it's a relatively small expense when compared to the extensive benefits and protection it provides. As you navigate your property purchase, it's important to make an informed decision about title insurance. The title and closing professionals at Bluegrass Land Title are here to help. We're happy to answer your questions, guide you through your title insurance options, and provide support throughout your entire real estate transaction.