Title Insurance Explained

What is Title for Home
Home Title is the certificate to show the home ownership, just like car title. When you purchase a home, you are purchasing the home from one or multiple current home owners. After the real estate transaction, the title of the home is transferred from current home owners to you. One thing you want to make sure is that all the owners of the home have been identified and all of them have signed the contract to transfer the home ownership to you. The process of identifying all the current home owners is part of the title research done by the title company.

Why Home Title Insurance is necessary
Just like car insurance, home title insurance covers the situations that when there are dispute on the title of the home, such as from previous home owners who were not identified in the title search, or from uncollected executed transfer of title.

For example, A purchased a new home. A has two sons: A1 and A2. A2 went to Europe and has been living there for the last 20 years. After A passed away, A1 inherited the home, which he sold to B. From the title search, A1 is the only owner. After B purchased the home, A2 came from Europe with A's original will, which basically said that A intends to give the home to A2 only. As a result, the previous sale of the home from A1 to B might not be valid. The fact that only A2 has the original will from A is impossible for anyone else to know. So such things will never be discovered during the title search.

When this happens, the title insurance will cover any costs for B. That's the benefit of Home Title insurance.

Title Insurance: lender portion and owner portion
When the buyer purchase the home with the mortgage, the title insurance can be divided into two portions: lender portion and owner portion. For example, if a house is sold for $500,000 and the buyer put down payment of 20%, or $100,000. Then the lender portion of the title insurance would cover $400,000. The owner portion of the title insurance would cover $100,000.

All lenders require borrows to purchase title insurance for the lender portion of the home. So the lender portion of the title insurance is mandatory and everyone with mortgage would be required to buy it.

However, I think 99% of the buyers does not even know that the owner portion of the title insurance is optional. So the buyers does have a choice of not buying it. For a owner portion of the title insurance of $100,000, it would cost around $2000 for a basic policy. When I bought my first home, I did not even know that I have a choice of not buying the owner portion. And as far as I know, the actual probability of the title have any issue in the next 10 years is less than the probability of winning lottery. So personally, I am leaning towards not buying the owner portion of the title insurance when I buy my next home.

Please always do your own research and decide whether you want to buy the owner portion of the title insurance. All I want to say is that the owner portion of the title insurance is optional.

Below are a few website that you can get quote for the title insurance:
• Fidelity National Title: http://ratecalculator.fntg.com/default.aspx?brand=fntic
• First American Title：http://facc.firstam.com/public/default.aspx
• Chicago Title: http://chicago.title.com/ on the left sidebar

I want to know whether you want to buy the owner portion of the title insurance. Leave me a note here.