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Chrisman's Corner: A Primer on Title Insurance

Home buying is on the upswing in many parts of the nation served by JMAC. Our brokers know that with home buying comes a series of decisions, including where to buy, what kind of house, loan terms, and so on. One issue that is often overlooked until the end of the transaction is, “Why do I need title insurance?”

Our experienced brokers explain to clients that title policies insure that things are what they are supposed to be: in a purchase the title policy is insuring that they are the rightful owner, that no one else can come along later and claim ownership of the property. For JMAC the title policy insures that our lien has a certain priority on title and that the only liens against title are documented and disclosed. Title insurance covers any title issues that occur up to the date deeds are recorded when the policy is in effect, it does not cover any issues that occur after the transaction.

Title insurance is not cheap, and claims are rare. But when title insurance companies do pay claims, they are usually very hefty, think tens or hundreds of thousands of dollars. Because of this most of the revenue title insurance companies collect do not go to paying claims, in fact the industry average is that only about 5% of premium revenue goes to claims compared with approximately 70% for auto insurance. Title insurance companies spend the bulk of their premium revenue on loss prevention (research).

Claims might be paid if the owner of the current home purchased the property eight years ago from a seller who had a lien against the property that was recorded improperly in the county records and that lender stepped forward to collect on they buyer’s home and possibly force the sale. Forgeries on deeds, unpaid liens, easements improperly recorded or illegal confiscations of title on the property are problems; bank foreclosures and short-sales can complicate things, as can divorce settlements with a recalcitrant spouse, estate issues, easements, or a private party second from a prior seller.

Title policy premiums pay for all the work done by the title company prior to closing so they can insure the buyer/person refinancing obtains clear title. And if the owner discovers later that they do not have clear title, it is the title insurance company’s obligation to pay to correct any claims that may arise. JMAC’s brokers are well-versed in being able to explain this part of the process.