Why Buy Title Insurance?
You agree to buy real estate. I check out the title, looking back more broadly than others, but, in the end, only so far. If I find something wrong, I raise it with the seller and get it fixed, get a price reduction or get you out of the deal. Then, you close. The seller executes the deed, promising you title is good, something that, if it’s not true, you’re free to sue about. So, I've blessed the title and the seller is on the hook to you if it's bad. Seems like you're set. I mean, with all that, what possibly could go wrong?
Turns out, plenty.
Let’s say the deed that supposedly gave the seller title to sell to you was forged, or someone forged a mortgage discharge to make it appear a bank had been paid. Yes, you could sue the seller on your deed, but if you’re guessing the seller would be tough to track down or without funds to cover damages, you’re probably right. As for your attorney, tough luck there, too, because your attorney isn’t responsible for detecting forgeries. So, if the rightful owner or unpaid bank comes forward, you might lose the property and have no way to recover. But not if you’d purchased title insurance. A title insurer would hire and pay for an attorney to defend you, and the title insurer would cover your loss up to the home’s purchase price.
The seller signed the deed. It’s no forgery. But it turns out the seller who looked so together at closing wasn't legally competent to execute the deed. So, the deed is of no use, on its face. Your attorney isn’t responsible, either, because your attorney isn't responsible for detecting incompetence that you couldn't yourself. So, you’re stuck in a lawsuit against the seller’s guardian, hoping for the best. But if you’d purchased title insurance, the title insurer would pay for your defense, and, if you lost, cover your loss up to your home’s purchase price.
You hire me, and even though I look back, say, fifty years (i.e., more than the standard forty years), I find nothing of concern. Several years after closing, someone asserts a right to build a driveway right across your property based on a document that was recorded fifty-seven years ago. I'm not on the hook because it was outside my search period. The seller is, but let's say you can’t locate the seller, or you do but find the seller has died or doesn’t have two cents. You’re stuck with that driveway and the loss it entails. But not if you’d bought title insurance.
I check the records, as your attorney, but found no problems. Turns out, however, that the town clerk misfiled the record for a mortgage. Well, I'm not on the hook for that, and unless you can locate the seller, and the seller can cover the loss, you'll be out of luck. But not if you'd paid a one-time premium to buy a title insurance policy at closing. If you had, the title insurer would pay off that mortgage to protect you.
I look hard for problems, but I'm not in the business of taking chances. So, everything I find, I report, and I make it clear I can’t be held responsible for anything I report. Fine. I report it and you accept that. What’s that have to do with title insurance? The answer is this. I negotiate your title insurance and often get the title insurer to “insure over” some risk that I report so that, if the risk comes to pass, you're covered.
Sometimes an attorney misses something. It happens. Indeed, I routinely find things prior attorneys missed. But I'm a human, too. What if I miss something? Well, you could ask me to make good, sure. But let’s say you don’t learn of the problem until you try to sell twenty years later, and, when you come looking for me, I've retired to who-knows-where or am dead. If you purchase title insurance, that's not a concern!