What is Title Insurance and Why Do I Need It?

by Kirk Anderson on November 5, 2012

What exactly is title insurance and why do I need it?
What is the difference between a loan policy and an owner’s policy of title insurance?

Title InsuranceBuying and selling real estate can be confusing.   All sorts of rules and regulations govern real estate transactions, even if the prospective buyer is paying cash for the property.  For a one-time premium, title insurance covers the insured against a loss resulting from a covered defect in the title to your property.  Mistakes may have been made in a prior deed, will, mortgage, etc. that could give someone else a legal claim against your property.

In general, there are two standard types of policies that are issued for most real estate transactions in Wisconsin.  These policies include loan policies and owner’s policies.   A loan policy protects the lender’s interest in the property.  Only an owner’s policy will provide an owner with such coverage.  An owner’s policy usually can only be issued at the time of purchase, and most title insurance companies will give a break either on the owner’s or lender’s policy premium if both policies are issued at the same time.  The most common risks that are covered under both types of policies include errors in prior documents, liens created by previous owners, claims of ownership of an heir or spouse, and invalid deeds signed by an incompetent or even the wrong person.

It is a common misconception that every possible risk is covered by the title policy.  When a risk is covered by your policy, the title insurance company will negotiate with the other party, defend you in court, and pay any covered claim.  Not all risks can be covered by either policy.  Review your title commitment to understand what risks may not be covered by your policy.  They are noted as exceptions in a title commitment.  There may be easements, restrictive covenants, or other legal obligations noted on the title commitment that are exceptions from coverage.  While claims are rare, when they do happen, they can be expensive to settle.  Having the added protection of an owner’s policy of title insurance for a one time premium can be well worth the price of the policy.

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