Title insurance works much the same as any other insurance policy. You purchase it to protect you financially from the unknown—be it a fire that damages your home or car accident that totals your car.
The biggest difference with title insurance is not only what it covers (that is your claim to your real property), but also in how it works. A good title insurance company will work to protect your interest even before the insurance is purchased by doing an exhaustive title search to help assure there are no claims against the property. And a good title insurance company will have your back should any claims arise later.
Claims typically arise from one of three scenarios.
- When a previous owner unlawfully obtained the title or didn’t have legal authority to transfer it to you.
- When a previous owner used the property as collateral on a loan and didn’t repay the loan prior to your purchase.
- When there are liens against the property.
Without title insurance, the new (current) property owner would be responsible for paying any outstanding loans or liens. People who have legitimate claims to the property can sue, but title insurance will come to your defense to pay the debt, settle legal conflicts or defend a lawsuit.
If you are alerted to a claim on your property, and you have title insurance, immediately review the policy and follow the instructions about how to file notice with your title insurance agent. Calling your agent can also help—as some companies will assign a representative to help you file your claim. But simply calling your title insurance company may not be enough; it’s critical to follow the instructions in the policy and do so immediately.
The longer you wait to get your title insurance company working on your behalf, the worse the problem becomes. Plus, many policies include language that restricts their liability if not notified immediately. If your policy’s instructions require you to send materials through the U.S. Postal Service, be sure to send them via certified mail, so you have proof of prompt notice.