Title Insurance: Do You Need It When Selling a House?

Title insurance is a big subject and a big expense whenever you prepare to buy a home. And title insurance can kick in and save the day when you prepare to sell a home and possible issues are found with title to the property. Title issues are somewhat invisible, I mean they are not something you can easily see, such as a leaky roof or a cracked foundation, which can easily be seen by buyers and their property inspectors. Title issues are potential legal problems identified by lawyers and researchers sitting at computers looking at the legal and financial history of a property. But title issues can cause problems like frustrating delays and expenses, too, just as much as leaky roofs and cracked foundations.

Now you know that title insurance is important, but what you might not know is that the premium you pay for title insurance has two strange features that set it apart from all other insurance premiums you pay. First, it goes backward in time, not forward. Meaning, it stops coverage as of the date the policy is issued and covers title issues that arise from that date going back in time, not forward in time like your homeowners or car insurance policies. They provide coverage starting on the day your policy is issued and go into the future. Title insurance only goes back into the past. If you sell a home and a title issue is discovered, you will be very glad that there is title insurance coverage going back in time before you bought the home.

And the second strange thing is that title insurance often covers only your mortgage lender, not you. It's possible to purchase coverage for your own interests, but it is not automatic. What you pay at closing is an insurance policy to cover your lenders' financial interest in your home.

At this point you may be thinking that you've learned a couple strange things, but you still don't really know what title insurance actually covers, is that right? Let me explain it this way - a cloud on title, or a possible person or group that could claim an interest in the property may show up when you're ready to sell a house. Besides unpaid real estate taxes owed to taxing authorities or mechanics liens due to money owed to contractors that worked on the property there could be documents that weren't signed or notarized properly, or certain documents could be missing entirely. Title insurance covers the mortgage lender for any claims and legal fees that come about in solving these problems in order to have clear title. Somebody is going to have to pay a lawyer to solve the legal issues, and most title insurance is designed to cover the mortgage lender's possible legal expenses.

The lender's title insurance policy does not cover your own legal expenses if you have to hire a lawyer to clear up title issues to sell a home, but you are certainly free to purchase your own title insurance for that purpose. It's an especially good idea to purchase title insurance if you sell a house with owner financing so that your interests are protected when the house is sold again.

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