When you are purchasing a new home, it is important that you receive a free and clear title. Free and clear title means that the seller of the home can rightfully transfer full ownership of the property, and does so at the time of closing. Title insurance is an important necessity when purchasing the property because it protects both the buyer and the lender in instances where there is a problem with the title. For example, in instances of criminal conduct, the seller may attempt to sell a piece of property that he knows he does not have the legal right to sell. If title is not investigated, or if the seller is able to hide true ownership of the title, then after closing, the buyer will have paid money to the seller but will not be able to receive the property that they purchased.
If the buyer has title insurance, the insurance company will typically reimburse the lender, or pay for the costs of any court actions, so that the buyer is not “on the hook” for the full purchase price. In less cut and dry circumstances, there can be an issue of title if there is a lien against the property that did not appear on the title search, or there may be a problem with the chain of title. While these problems usually do not amount to criminal conduct, they can still have a devastating effect on the sale of the property. Title insurance will help to pay for the cost of any court actions that may occur as the result of any liens or problems with the title, according to the terms of the title insurance purchased. While usually, title insurance is a just a mere precaution, you do not want to forego the protection and take your chances, hoping that the title is free and clear. If a problem does occur with title, it can be a costly legal process to correct the problem, and can even result in the loss of the entire money spent on the property. Therefore, this legal protection should always be utilized when available.