Purchasing real property is typically a complex, lengthy, and often confusing, process. It is also frequently the single biggest purchase you will make over the course of your lifetime. Part of the reason why the home buying process takes so long is that there are a number of important legal steps involved in the purchase of real property. One of those steps is usually the purchase of title insurance. In fact, we strongly recommend that a purchaser obtain title insurance to protect their investment. To understand why title insurance is recommended it helps to understand what title insurance is and how it protects you and your money.
Although no two real estate transactions are exactly the same, the purchase of most real property entails many of the same steps, including:
- Locating a suitable property
- Submitting an offer to purchase
- Negotiating the offer to purchase with the seller
- Acceptance of the offer
- Securing financing
- Securing insurance, including title insurance
- Closing on the property
When you purchase real property the legal title to the property is transferred from the seller to you; however, the title to a property can be encumbered for a number of reasons, such as the existence of a mechanics lien or a tax lien on the property. If the title is encumbered it means that a clear title cannot pass to anyone. Other title issues can also cause a problem for a purchaser, such as errors or omissions in the deed, long lost heirs, or forgery of a relevant legal document at some point during the property's history. To prevent problems down the road, a title search is typically done on the property by a professional title company prior to closing. A title search, however, is accomplished by a human being and human beings are not infallible. This is why title insurance is needed.
Title insurance protects both a buyer and the lender from unforeseen problems caused by something that was missed during the title search. Imagine, for example, that you plan to purchase a home that was built at the turn of the 20th century - over 100 years ago. A title search is conducted prior to closing and everything appears to be in order. Two years later you are notified that a typographical error was made on legal description found in the deed when it was transferred back in 1955. The correct legal description puts your property line running straight through the middle of your pool. Without a doubt it will be a costly error, both in terms of money and time. If you purchased title insurance, however, your title company will defend your claim of right to the property and cover the reasonable costs associated with any litigation involved.
For specific questions regarding title insurance or the purchase of real property in general, consult the experienced attorneys at Simon & Gilman, LLP