One of the questions I get asked frequently in my real estate law practice is, “Why do I need title insurance?” If a buyer is purchasing real estate with lender financing, then the title insurance is mandatory. The lender will not allow you to close without it. However, with most closings now being done in cash, buyers question whether they should get title insurance at all, since it is optional. It is also one of the most expensive closing costs. As a title insurance agent and title company, however, my answer is always yes! It should never be optional.
Many real estate buyers and investors do not know what title insurance is or, more importantly, how it protects them. Title insurance is a policy that covers third-party claims on real property that did not show up when the title agent or title company examined the title before closing. A third party is anyone other than the property owner that could have a claim to the house. A perfect example is a construction company. If they did work at the home for the seller and the transaction closes, they could have a lien or a claim against the property now owned by the buyer. If a title dispute arises after the sale, the title insurance company is then responsible for paying legal damages to the new buyer. If the buyer does not purchase title insurance, then they would be responsible for remedying any issues and paying whoever is making a claim.
Title claims can arise at any time after you’ve owned the property free and clear for years. For example, if there’s an overlooked heir to a property, they can come and make a claim to your property even if years have passed.
As a title company, we perform what is referred to as a title search and are trained to examine the title report to check for any title defects. Defects could be liens, easements, encumbrances, mortgages, and more. We also examine public records and check deeds, divorce decrees and court and tax records to ensure the title is clear. If there are any issues, we work with the seller to resolve them prior to closing. We then prepare a title commitment, in essence, “committing to insure the title” once the transaction closes. After closing, we issue the buyer their Owner’s Title Insurance Policy and the lender their Lender’s Policy. This title insurance will then be valid and cover you for all the years you own the property.
Florida is one of the few states that does not require title agents to be lawyers. However, many real estate lawyers, such as myself, are title agents and title companies. Therefore, we perform all the services in one, which is the best way to protect yourself. Before you close, even if you are buying in cash, speak to your real estate attorney and go over the title commitment with them. Hiring a lawyer ensures you are protected every step of the way in case the title company shuts down and disappears. And do yourself a favor: Get the title insurance! You won’t be sorry.