Should You Buy Homeowner’s Title Insurance?

Question: We are buying a home in a few weeks and one of the closing costs is an optional $1,500 for Title Insurance. Do you recommend buying title insurance?

Answer: Yes, I do recommend buying Title Insurance. It’s a one-time fee that protects your ownership in what is likely the most valuable asset you own and you cannot decide to add Title Insurance in the future. However, like any form of insurance, it depends on your appetite for risk.

I’ve asked David Cartner, an attorney with Highland Title & Escrow, to provide a full explanation of the benefits of Title Insurance and some examples of when it would be used. Take it away David…

Do You Really Need Title Insurance?

As a real estate settlement attorney, buyers often ask me if they should purchase title insurance when buying a home. My response is that it depends on what level of risk the buyer is comfortable taking. A purchase of a house or a condominium is usually the biggest investment a person makes in their lifetime. If a buyer does not purchase title insurance, he/she risks losing the entirety of the investment.

Why, then, do buyers question purchasing title insurance when the risk of loss is so high? After all, no one seems to question the need for homeowners or rental insurance. I believe the reason is twofold: (1) buyers do not understand the benefits of purchasing it, and (2) title insurance is unlike other types of insurance in that it covers issues that have already happened.

Indeed, there is a long list of risks covered by title insurance, but basically what the buyer is hedging for are the unknown or hidden hazards that might jeopardize his or her ownership in the home. Hidden hazards may include:

  • Liens that were not revealed in title exam or made known to settlement agent prior to closing. Normally, a title exam reveals any liens on the property which need to be paid off and released prior to closing. If, however, the title examiner overlooked a judgment, tax, or mortgage lien on the property or failed to note it in the title exam, the buyer would be liable to pay the lien incurred by the previous owner.
  • Boundary line issues that an accurate survey would not reveal. For example, if a survey failed to note that a neighbor’s shed encroached on the purchaser’s property, title insurance would cover the cost of removing the shed and resolving any accompanying boundary line dispute.
  • Forgery or lack of authority. If there was a forged signature on the deed in the chain of title, or a person or corporation signed a deed without authority to do so, the transfer of ownership to the buyer would be in question.

 

  • An unknown heir of a previous owner came forth to claim ownership in the property.For example, suppose a seller passed away and his three children sold the house to a purchaser. If an unknown fourth child later came forth to claim his quarter ownership in the house, the purchaser’s title to the property is in jeopardy.
  • Instruments executed under an expired power of attorney.
  • Building permit violations. An enhanced version of title insurance is available that covers existing building permit violations. If a previous owner never obtained the appropriate building permits when remodeling a kitchen or bathroom or building a deck, enhanced title insurance would cover the cost of obtaining the appropriate permits. Note: the enhanced version is about 20% more expensive than the standard version and affords additional protection to the homeowner.
  • Mistakes in the public record at the county in which the property lies. Recently, Arlington decided to do a look back process on taxes for individuals that were exempt up to 20 years ago.  Arlington has audited the accounts to see if the exemption was applied correctly years ago. If not, the County is attempting to collect the back taxes from the current owner of the property.  At the time of the closing, there was no evidence of any taxes owed and a phone call to the County would not reveal any taxes owed. At Highland Title & Escrow, we have had two of these cases arise and luckily the owner purchased title insurance and the title insurance company will pay the back taxes.  

While lenders mandate that owners purchase lender’s title insurance (which only protects the lender’s interest in the property), homeowner’s title insurance is completely optional. It is a one-time fee that covers the owner for life.

Though there are certain factors that decrease the risk of an existing title defect, like having fewer previous owners of the house, a typical subdivided lot, or a recently constructed house, a buyer takes title to a house never knowing what title defect may already exist. In this respect, title insurance is unlike other types of insurance in which the purchaser can mitigate risk.

Contact David Cartner (703-760-3300 or dcartner@highlandtitle.com), an Arlington settlement attorney at Highland Title & Escrow, with further questions regarding title insurance or the real estate settlement process.

About David

David is an Attorney originally from Asheville, NC where he learned about the business from his parents who are both Real Estate Attorneys.

Prior to joining Highland Title & Escrow in 2013, he worked as the Managing Attorney of the District of Columbia division for Morris Hardwick and Schneider.  While there he tried many cases involving Foreclosure, Evictions, and Bankruptcy in front of the different courts in the District of Columbia.

David graduated, from the University of North Carolina at Chapel Hill, earning a B.A. in Public Policy specializing in Business and Government. He earned his J.D., from Campbell University, Norman Adrian Wiggins School of Law, graduating with a distinction in Business and Tax law.

David is admitted to practice law in the States of Pennsylvania, North Carolina, New York and the District of Columbia.

David currently resides in Arlington, VA with his wife, Melany, and their dog, Wheatley.