Do I need to get Title Insurance?
Buying a house is BIG DEAL, and it is usually pretty expensive too. Sometimes cash-strapped buyers start looking for expenses they can live without in order to save some money. One of the first line items they might look at is Title Insurance, and wonder “Do I really need to buy this?”
The short answer is: Sometimes…
A less short answer would be that when you buy property you are not simply receiving a piece of land. What you are actually buying is “title”, or a bundle of rights to a property. Title isn’t always free and clear, and there is potential for some nasty surprises. If you are not protected, then you could get hurt in a big way. Title insurance protects you from that. [what does holding title actually mean]
But, as for when title insurance is REQUIRED, and when it’s not; it depends on the details of the transaction.
2 Different Types of Title Insurance
In a “typical real estate transaction” (one where a buyer is borrowing money to buy a house) there are actually two title insurance policies: the lender’s title policy, and the owner’s title policy.
The lender’s title insurance protects the bank against potential losses due to title issues. If, for example, a previous creditor shows up with a valid lien against the house, and there is not enough equity to pay both the lien holder and the bank, the lender’s title insurance policy would make the bank whole. However, the lender’s policy only insures the amount that is currently owed to the bank. This means that only the bank is protected, any equity that you have in the house would still be at risk of being completely lost.
An owner’s title insurance policy protects you, the buyer, from all unknown title defects that may arise in the future. Usually a title company will insure the full purchase price amount of the home. This one-time premium buys a policy that protects you as long as you own the home, and even protects your heirs if they inherit the home from you.
So, Is Title Insurance Required or Not?
The lender’s title insurance is required by the lender. So, if you are borrowing money to buy a house, someone will need to buy a lender’s title insurance policy. Typically in Orange County, and most of Southern California, the buyer is responsible for purchasing the lender’s title insurance.
Owner’s title insurance on the other hand is optional. However, I would never advise a buyer to buy a home without it. Typically, in Orange County, the seller pays for the owner’s title policy in order to insure delivery of clean title. But, if you find yourself in a situation where the seller refuses to pay for it, and you refuse to walk away from that house, then I would advise buying the insurance. It’s a relatively small price to pay to avoid some relatively huge potential problems.
Is Title Insurance Required if You Are Paying Cash
Nope. As we covered above, title insurance is only required when you are borrowing money. But again, you should never forgo title insurance. Yes, that is just my opinion, but I think you would be hard-pressed to find a real estate professional who would advise otherwise 🙂