Understanding “Titles” and “Title Insurance” in Real Estate

When you buy a house, the words “title” and “deed” often come up. First, let’s define these terms for you:

• Title: Refers to the legal right to own a property. It shows that you are the official owner. Think of it as the idea of ownership.
• Deed: Refers to the piece of paper that states who has the title. This legal document transfers ownership from the seller to the buyer and is proof of the transaction. It is filed/recorded with the local government at the county or city level.
• Title Insurance: Insurance just in case a new owner faces an issue with the home’s title down the road. Sorting out problems in court is very expensive, so this insurance is a must when buying a home.

Why is Title Insurance Important?

Before closing day, a title company checks the property’s history to make sure there are no issues, like unpaid taxes, mistakes in past paperwork, or claims from previous owners. Title insurance protects you if something was missed during the title research. And things do happen more often than one would think. Sorting out the issues is time consuming and expensive.

What Cause a Title Dispute In the First Place?

Here are some specific examples of why Title Insurance is worth the expense:

• Unresolved Liens – Liens are claims against a property due to unpaid debts, like taxes or a contractor bill that was never paid. If these aren’t sorted out before the sale, the new owner may face a title dispute. Example: A buyer discovers a tax lien from a previous owner years after purchasing their home. The buyer is now responsible for resolving it.
• Boundary Disputes – Neighbors can disagree over where property lines are. If a fence, driveway, or structure is built in the wrong place, it can lead to a title dispute and create a delay in a sale or purchase of a home. Example: A homeowner discovers their garage is partially built on their neighbor’s land. The dispute ends up in court to determine the rightful boundaries. Learn more about property lines and surveys
• Fraudulent Sales – Scammers are rampant in real estate today.  They forge documents and sometimes are able to sell a property they don’t even own. Example: A property is sold by someone pretending be the owner. The real owner is out of town. When they return, the buyer realizes their title is invalid. Learn how to protect yourself from scammers 
• Unknown Heirs – If a property is inherited, long-lost heirs may show up years later. Example: After a property is sold, a distant relative appears with evidence that they are entitled to a share of the home, creating a legal battle.
• Clerical Errors – If a public record has a misspelled name or is missing a signature, it causes confusion over who legally owns the property. Example: A typo in a previous deed lists the wrong buyer, creating a dispute over the current owner’s claim.
• Undiscovered Easements – An easement gives someone else the right to use part of your property for a specific purpose, like utility access. If easements aren’t clearly recorded with the government, disputes can arise at the time of sale. Example: A buyer learns after purchasing a home that a utility company has the right to build on their land due to an old, undocumented easement. This fact might give that buyer second thoughts on purchasing the home or cause them to ask for a discounted price for the property.

Protect Yourself

Don’t try to save money by not buying title insurance. This is a really short-sighted idea. This insurance covers legal fees and other costs if a dispute arises. Disputed titles can be a headache, but understanding the risks and taking precautions can protect you from unexpected surprises.

Additional Resources