man signing title insurance

Understanding Title Insurance

If you own real estate and have a mortgage, you have undoubtedly been exposed to title insurance. Even if you have never purchased real estate, you have likely heard of title insurance – whether seeing title insurance agencies or hearing “title insurance” in passing. Despite the ubiquity of title insurance, many do not understand what title insurance provides or why it is needed.

Overview of Title Insurance

Title insurance is a legal indemnity agreement that protects policyholders and related parties from losses resulting from defects that may exist in a specific property. Title insurance policies will identify certain types of defects that will be covered while excluding others. Much like homeowner’s insurance’s infamous distinction between water damage and flood damage, title insurance protects against some title defects while not protecting against others.

Title insurance is important because it is an insurance policy against potential or real defects in property ownership which could result in expensive litigation and potentially render your ownership invalid. For example, assume you buy a home from Tom Builder. He claims to have inherited the property and is looking to free up some cash. Presume you buy the inherited property from Tom without title insurance or having conducted an exhaustive title search. A year after you buy the property you receive notice from one of Tom’s relatives that they are the real owner of the property, stating that Tom never had a right to sell the property. If Tom never had the right to sell the property, then legally, you may not actually own the property despite Tom having now disappeared with your money.

If the relative decides to file a lawsuit against you for ownership of the property, you will face expensive litigation to determine the property’s rightful owner. If you lose in this lawsuit, you may no longer own the property and would be forced to attempt to recover from Tom the amount you paid. With title insurance, the insurer offers protection from these claims. By providing title insurance, the insurer is stating that they have reviewed the chain of title and have confirmed that Tom Builder is the rightful owner and capable of selling, and indemnify you against any future costs associated with the title, such as litigation or loss of property. 

Because title insurance indemnifies the purchaser’s claim in a property, lenders generally require title insurance to ensure that their security is also valid. Thus, when transacting in real estate, you are likely to need title insurance. Even where it is not mandated by a lender or another requirement, title insurance is one of the best investments you can make. 

Real Estate Title Insurance Lawyers in Rhode Island, Massachusetts, and Connecticut

At Palumbo Law, we have advised thousands of individuals, families, investors, and businesses in buying and selling real estate. Whether you are buying your first home or an investment property, our attorneys work tirelessly to ensure that the process is fast and efficient while keeping you protected. If you are considering buying real estate in Rhode Island, Massachusetts, or Connecticut, please contact our office to set up a consultation or complete the contact form