For the average person purchasing real estate, title insurance seems like a scam. Unless you come to the closing table with enough cash to purchase the property outright, you will usually need to purchase two separate title insurance policies.
You will pay thousands of dollars each for a policy that protects you and a policy that protects your mortgage lender. The average person will never need that coverage, as title claims are relatively rare. However, especially if you bought a property sold as the result of a divorce or during probate administration, there could eventually be a claim brought by someone else that could negatively affect your ownership rights.
How will title insurance protect you in the event of such a claim?
Your policy pays for your legal representation
Fighting back against a title claim will often mean in-depth research and going to civil court. It may cost tens of thousands of dollars to secure the representation you need to prove that you are the rightful owner of the property in question.
Your title insurance policy will usually cover the costs to retain an attorney to help you litigate the title dispute. You won’t have to find the money for a retainer yourself and can instead rely on insurance to pay for that help.
Your policy can reimburse you for your losses
Even if you purchased a property expecting it to be the home you live in for the rest of your life, the courts may decide that the transaction you completed was not valid because of the other party’s interest in the property.
In this rare scenario where you lose possession and ownership of real property because of a title claim, your title insurance policy will reimburse you for the down payment you made, the equity you have accrued through monthly payments and possibly even financial investments made to improve the property, like the cost of the new roof you had installed.
Although the average homeowner will never need title insurance coverage, for those who do face title claims, this protection is invaluable. Knowing about your rights when facing a title dispute related to your home will help you favorably resolve a situation that threatens your homeownership.