Collins: Why is title insurance important?

When purchasing property, every penny counts, especially with the high cost of housing. It is only natural to question all the miscellaneous fees attached to the process. However, title insurance is an essential service. “Title” is the legal right to use or own property and title insurance protects you from legal challenges to your title.

The amount you pay for title insurance is based on the purchase prices of the property.

“Title insurance protects homebuyers and lenders from financial loss due to defects in a property’s title,” Vice President of Sales for Chicago Title Kevin Barrett said. “Unlike other insurances that protect against future events, title insurance guards against past issues — like unpaid taxes, forged signatures or undisclosed heirs — that could threaten your ownership. For a one-time premium, title insurance offers peace of mind that your ownership is legally sound. It’s a small cost for protection from potentially life-altering issues.”

Title insurance can potentially discover document errors that could affect your ability to sell your property in the future. Something as simple as not having your deed properly notarized could hang up a sale and future transfer of property.

In today’s market, where fraud and identity theft are on the rise, title insurance has become even more critical. Sophisticated scams involving forged documents or impersonated sellers can compromise ownership rights. Title insurance adds a layer of legal and financial protection that is more important than ever.

Ramezy Amireh, vice president of sales for Old Republic Title, shares a real-life story that is still unfolding to help illustrate the importance of title insurance:

“A man, who we will call Jack, found out just how true that is. Jack bought a house, not just as an investment, but it was to be his home. When we closed his escrow and the agent handed him the keys, we issued a CLTA/ALTA Homeowner’s Policy of Title Insurance.

“One day, Jack received an eviction notice from his sister, who we will call Jill. Eviction? Jill produced a copy of a recorded deed from Jack to Jill. Jack had never signed such a deed. Jack knew that he had not given his home to his sister, but Jill insisted he had. An unlawful detainer lawsuit followed. When the sheriff arrived on Jack’s doorstep, he told the officer that the deed was fake, but it did not matter. The sheriff informed Jack that the authenticity of the deed was a civil matter and had no bearing on the enforcement of the eviction. Jack was evicted from his own home.

“The title company reviewed the title insurance policy Jack had purchased. Covered Risk No. 3 of the homeowner’s policy reads, ‘Someone else claims to have a right affecting Your Title because of forgery or impersonation.’ A title insurance policy generally gives coverage as of the date of the policy (the date the deed records), but the Covered Risk No. 5 of a homeowner’s policy reads, ‘Any of Covered Risks 1 through 4 occurring after the Date of Policy.’

“The title company had Jack file a claim under his policy. They filed a civil lawsuit on Jack’s behalf against Jill to undo the damage caused by the deed. The deed will certainly be declared void by the court because, of course, Jack did not sign it. As it turns out, the fingerprint in the notary’s journal belongs to Jack and Jill’s brother, Bill.”

Title insurance may not be the most glamorous part of buying a home, but it is unquestionably one of the most essential. You pay once for protection against hidden legal risks. It also ensures buyers and lenders can proceed with confidence. In an industry where one small oversight can lead to huge consequences, title insurance stands as a smart and necessary investment.

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. Contact Neil at [email protected].