Title insurance can seem like a necessary evil. What’s the worst that would happen if you didn’t bother with it?
The worst is pretty bad: you’d have paid for a property you can’t keep, because you can’t prove that you bought it legally.
Title problems erupt when numerous parties want to be repaid loans and bills collateralized by the same property. When you’ve got the lender that made the first mortgage; the lender that opened the home equity line of credit; contractors whose unpaid bills resulted in liens on the property; taxing districts; and even homeowners’ associations all lining up to be repaid from the proceeds of the house, it’s easy to see how they might not agree on who gets paid what, and when.
If you don’t bother with a title search, you buy all those problems along with the house. Just because you are the new owner doesn’t mean that the problems evaporate. You might have to sell the house just to repay the bills..which means that you have lost everything you put into the purchase.
A title search is required by all lenders. They want to make sure that title problems are cleared up before you buy the house. It’s not for you. It’s for them. If the lender makes a mortgage collateralized by a house that already has claims against it, that lender is going to lose that money.
Customarily, sellers pay for title insurance at closing. Recently, lenders have been requiring additional policies that protect their interest, and that policy is paid by the buyer at closing. Your lender is always covered by the title insurance policy you buy before closing. Make sure that the policy protects you, too.