Title Insurance 101

Disclaimer: This article is not intended to be construed as professional tax advice, always consult with your tax or financial advisor for additional information on how this will impact your personal or business tax situation.

Title insurance seems to be one of those phrases that makes peoples’ eyes gloss over. While it might not be as exciting as drones, title insurance is actually one of the most powerful tools you have to defend your rights to your land. Some people think that buying a property means that they automatically own all the rights to the land. These people are in for a rude shock when old easements and delinquent bills start to pop up. In this article, let’s explore what title insurance is and why it can be your best defense against issues that lurk in your property’s past.

In a nutshell, a title is the legal record of the property’s history of ownership, rights, and easements. Title insurance protects you against any defects in the title that may have occurred in the property’s history. These defects can include (but aren’t limited to):

• Hidden mortgages
• Easement issues
• Delinquent tax bills
• Clerical errors
• Unpaid mortgages
• Legal claims by spouses or children of previous owners
• Forged documentation
• Mineral rights
• And more

When you buy land, you also buy the legal history that comes with that land. Something as simple as a clerical error or incorrect parcel ID number can have terrible impacts on land value. Title insurance protects you from any defects in the title history that could impact your rights to the land or the land’s value.

When you purchase title insurance, the company conducts a title search. This is basically a background check on the property. The company will collect information about the history of the property, including access easements, timber deeds, mineral rights documents, power of attorney records, and more.

After the search has been completed, the attorney will issue a title option or title binder that will lay out everything that was found in the search. This document will be submitted to the title company so that they can issue a title insurance policy based off of their findings.

While most states regulate the cost of title insurance, you can expect to see massive price swings in the states that don’t. In his guest post for LandThink, Jonathan Goode, ALC, with Southeastern Land Group says you can expect to pay about 0.5% to 1% of the purchase price of the property for an owner’s title policy.

So, what are the benefits of title insurance? Having title insurance drastically reduces the risk of going to court over decades-old issues. Title insurance helps to eliminate any potential risks that can arise from issues in the defects in the title. Simply buying land doesn’t mean you automatically end the rights of previous owners. Title insurance is the only way to know for sure that you, and you alone, own the land.

People often get lender’s title insurance and owner’s title insurance mixed up. Lender’s title insurance protects the loan institution from issues relating to the property’s title. This type of insurance is required. Owner’s title insurance isn’t required, but highly recommended by many land professionals with decades of experience in land. The price for title insurance may be high, but paying a one-time fee for peace of mind is priceless, as Jonathan Goode, ALC, with Southeastern Land Group pointed out in an article for LandThink.

“Title insurance is a common-sense purchase when buying a piece of rural land. You can often obtain an owner’s title policy for about 0.5% to 1% of the purchase price of the property, and be protected from anything in the history of the title,” says Goode. “To me this is a wise investment and provides the peace of mind to allow you to use the property without worry.”

Buying land is a huge investment. Title insurance is a one-time investment that protects you against everything that happened on that property’s history. Insuring your land now is one of the best ways to help your land reach its highest possible value.

Looking to find the right title company for you? Check out the title companies that we recommend in our Technology Services Resource Center.

About the Author: Laura Barker is a freelance writer based out of California for the REALTORS® Land Institute. She has been with RLI since October 2017.