Do You Really Need Title Insurance?

Without it, you could lose your most valuable asset—your home

Nick Moonen is the President of Carver County Abstract & Title Co., Inc. and Scott County Abstract & Title Co., Inc.

If you are going to be purchasing or refinancing a home, chances are you will have to get title insurance.  What exactly does title insurance cover, and who does it protect—the homeowner or the lender?  Do you need title insurance on a refinance if you bought title insurance when you purchased your home?  Do you need title insurance on a newly constructed home?   Here are answers to those important questions, as well as helpful advice on title insurance, and whether or not you need it.

 Basically, title insurance protects you against problems affecting ownership of your home.  There are two types of title insurance—a Loan Policy, and an Owner’s Policy.  A Loan Policy protects the lender for the loan amount. The Owner’s Policy protects you, the homeowner, for your investment in the property—your equity.  In both cases, the title process covers an exhaustive search of public records to make certain the title to the property is clear, and covers against future loss if a claim is made.

While finding an issue with your title seems unlikely, one out of every four searches reveals a problem.  Examples include tax liens, forged signatures, recording errors, railroad interests, undisclosed easements and title claims by missing heirs and/or ex-spouses.  These problems would be uncovered in a title search and resolved before you even close on your home.   

Even after an exhaustive title search is performed and a title policy issued, sometimes a problem may surface that can threaten your home.  If you only have purchased a lender’s policy, where the outstanding loan is covered, your equity is not protected.  A separate Owner’s Policy would protect you—for as long as you or your heirs have an interest in the property. 

 With the recent refinance boom over the last several years, some homeowners have questioned whether or not they need a new title policy when they refinance.  The answer is, you won’t need a new Owner’s Policy, but a lender will require a new Loan Policy because a lender’s policy only protects that lender for the life of the loan.  It is interesting to note that a second search is done just before the closing to make sure nothing has affected the title since the initial search, even if it’s only been a few weeks.

 In new construction, title insurance is just as important.  A homebuyer and lender will understandably want to make sure the title to the property they are investing in is clear. There is a chance that unforeseen problems might exist – anything from a mechanic’s lien from a contractor who claims he/she has not been paid, or a judgment placed on the property for unpaid taxes.  Also, you will want to make sure the house wasn’t built on any easements or boundary lines.

How title insurance rates are set varies from state to state.  In Minnesota, each title company files its rates with the Department of Commerce. When comparing rates, be sure to get detailed information on what is included in that rate, so you are comparing equally. In some transactions, the seller actually pays for Owner’s coverage or some of the search fees.  Be sure to ask about an Owner’s Policy at the time you obtain a Loan, as the cost of an Owner’s Policy can be significantly reduced if purchased with a Loan Policy. 

In Minnesota consumers are free to choose their own title insurance company. Many people rely on their real estate agent or lender for a title company recommendation as they are in a position to know which companies provide good service. However, you are not required to use the title company they recommend.

Remember, title insurance protects you against the potential loss of your most valuable asset—your home. 

Nick Moonen is the President of Carver County Abstract & Title Co., Inc. and Scott County Abstract & Title Co., Inc. The companies have offices in Chaska, Waconia, Shakopee and New Prague and have been serving the Southwest Metro with quality abstracting and title insurance services since 1959.