You have more than a one in three chance that buying title insurance will pay off.
Technically, title insurance policies always pays off, because they come with a service that guarantees the title to the home you buy is truly free and clear.
But industry trade group, American Land Title Association says title problems are found in 36 percent of all residential real estate transactions, including new and resale home purchases and refinances -- up from 25 percent in 2000.
Title insurance policies protect homeowners and lenders from claims against the title and are issued after the title company has investigated a title to make sure it is clear of any encumbrances, such as outstanding loans, liens or judgments, forgeries or fraud and other title anomalies. Once discovered, the title insurer takes some "curative action" to correct the problem and clear the title so that it can be transferred to the new home owner.
If any problems crop up later, which is a rare event due to the thorough investigation, the insurer clears the problem, including covering any costs to the homeowner.
In the past decade, title insurance companies have been up on charges for a host of infractions and questionable practices which they virtually always deny, but then often pony up multi-million dollar settlements that come with agreements to stop the practices.
Tarnished reputation or not. You can't avoid the coverage. You shouldn't want to.
Lenders, who have a risk stake in the property because they finance its purchase, demand the coverage and won't let the loan close until the title is deemed clear.
Consumers, however, foot the bill for the Lender's Policy. Depending upon the jurisdiction and the transaction, either the seller or the buyer may have to cover the cost of the insurance.
The industry's latest "Abstracter and Title Agent Operations Survey," which tracks, among other things, the percentage of title issues discovered and repaired prior to closing or escrow, found that the growing number of title problems isn't unexpected. More home sales translates into more title problems.
"The booming real estate market over the last several years has increased the number of transactions significantly, which means more title problems are found," said Rande Yeager, ALTA president.
"This clearly demonstrates the importance of a professional title search in all real estate transactions, whether purchasing a new home or refinancing an existing mortgage," he said.
Critics often argue the cost of title insurance is too expensive, but should be nominal or available at no cost especially when a home buyer refinances his or her mortgage shortly after buying the home. They reason there's little new information to search or verify.
Most title companies do offer some kind of discount for refinancing provided certain time and original lender restrictions are met.
Also, some states require it and ALTA advises home buyers to purchase an Owner's Policy of title insurance in addition to their Lender's Policy. Unlike the Lender's Policy, which is mandated by each lender, and has to be renewed with each transaction, an Owner's Policy protects the home owner for as long as they (or their heirs) have an interest in the property. There is no need to repurchase this coverage on a refinance or heir-title transfer of the same home.
Insurers say the work involved is worth the cost of title insurance because companies often search back 50 years through manual records to find and clear up problems. Title insurers pay fewer claims than most other kinds of insurers, but their upfront costs are substantially higher, the title industry says.
The ALTA's member survey found the most frequent curative action taken last year was obtaining releases and/or obtaining pay-offs for discovered liens, such as prior or existing first or second mortgages, unpaid child and spousal support, outstanding taxes, and other judgments.
Then came obtaining releases for assignment on deeds of trust and mortgages; and recording errors of names, addresses or legal description of the property as less commonly found errors.
