Home buying guide

In the 2024 State of the Union, the President announced a pilot program that would waive title insurance requirements for loan policies on certain refinancestitle insurance . Government-sponsored enterprises like Fannie Mae and Freddie Mac buy mortgages from lenders so that lenders will have money available to make mortgages to other borrowers. This ensures that mortgage financing is available to those who need it. Historically, the government has always required title insurance on the loans that it purchases. What is Title Insurance? Title insurance protects against defects in title, or the ownership of property. For example, there may be a dispute over who owns the property, or a deed may be void because of fraud, or there may be document errors or lienstitle insurance against the property. A loan policy of title insurance protects a lender’s interest in the property used as collateral for the loan it gives the homeowner. If the loan is not repaid, the lender can foreclose, which means it can sell the property and repay itself with the proceeds from the sale. This gives the lender confidence to make the loan. A loan policy only protects the lender. A separate owner’s policy of title insurance protects the owner. If the owner refinances, their owner’s policy still covers them, but a new loan policy is needed because the title company must re-examine title for any new issues that may impact the lender’s ability to foreclose. The policy not only insures that the new mortgage lien is valid, it also covers title problems that may have occurred between the old mortgage and the refinance. For example, there may be new liens against the property, like unpaid taxes or a child support judgment against the borrower.

Home title theft, also known as deed theft, deed fraud, or mortgage fraud, is when a criminal impersonates an owner and sells or mortgages the property. The criminal forges the owner’s name on a deed or mortgage and steals the money from the sale or loan. A forged deed or mortgage is void, but the true owner often must file a costly lawsuit to remove the forged deed or mortgage from their title.

Title insurance protects you from risks that could jeopardize the ownership of your property, like fraud, missing owners, liens, or document errors. Homeowners insurance protects against property damage that may be caused by an incident, like a storm, theft, or fire. A home warranty plan covers the cost to repair or replace appliances or systems in your home, for example, if your air conditioner malfunctions.

Though title claims are uncommon because of the work performed by title companies before property is sold, the most common title problems covered by title insurance are explained in this article. Title defects require time, effort, and money to resolve, but if you have coverage under a First American title insurance policy, we will fix the problem, pay you for your loss, or hire an attorney to represent you or defend you in a lawsuit.

While nothing protects property rights like title insurance, an alternative product is an attorney opinion letter, which is a written opinion on the status of a property’s title, or ownership. An attorney reviews and analyzes the property’s chain of title (ownership history) and gives an opinion on whether the title is clear or if there are problems that need to be addressed, and whether anything in the land records affects the property like easementstitle insurance or restrictionstitle insurance . Attorney opinions were widely used decades ago before title insurance became available but were replaced in most states because of the superior coverage of title insurance. Title Insurance Protects against Hidden Title Defects The public land records are where deeds and other documents that affect property interests must be filed. Like title insurance, an opinion letter relies on a search of the public records to figure out who owns the property and if there are any title defects like deed errors, missing owners, or lienstitle insurance . However, unlike title insurance, opinion letters do not guard against title problems. While an attorney may be liable for negligence if the opinion letter is wrong, the attorney is generally not responsible for errors that cannot be found in the public records or for false information within the public records. This is significant because one analysis found that almost 30% of losses and expenses from title insurance claims were due to title problems that could not be found in the public records [1] . Examples of matters covered by title insurance that are not covered by opinion letters include: Mis-indexed documents. This means that the documents were filed against the wrong property or owner. Missing heirs. This can happen when an owner dies and leaves their property to several heirs. If not all heirs sign a deed, the missing heir may have an ownership interest in the property. Fraud. A deed may have been forged by a criminal impersonating the true owner. Invalid deed signatures. A deed may be invalid if it was signed by mistake or by a minor, a person who is mentally incompetent, or someone who is not authorized to sign on behalf of a business (if the property was sold by a company). Another benefit of title insurance is that it covers problems that happen after you close on your home purchase, but before your deed is filed in the public records. An opinion letter is valid only through the date the attorney searched the public records. Later matters are not included. For example, after an opinion letter is issued, a child support judgment against the seller may become a lientitle insurance on the property or the seller could sign a deed to another buyer. Title insurance protects against these things, which means we will fix the problem, pay you for your loss, or hire an attorney to represent you or defend you in a lawsuit. An opinion letter does none of these things. Deed Fraud is a Growing Problem Deed fraud is on the rise and in the typical scheme, a criminal impersonates an owner and forges their name on a deed to sell the property and steal the sale proceeds. While a forged deed is void, the true owner often must hire a lawyer and file a lawsuit to remove the forged deed from their title. Some title insurance policies, like the First American Eagle policy, cover this situation and these legal fees. Opinion letters do not provide this protection. An Example of Title Insurance Battling Deed Fraud In one real-life example, an owner learned that their vacation home in California had been sold through a forged deed [2] . The owner was protected by a title insurance policy that covered the court costs to cancel the fraudulent deed and restore title in their name. The innocent buyer was also protected by a title insurance policy, which paid them $400,000 for the loss of the property. Neither the owner nor the buyer would have been protected by an opinion letter. If both had declined title insurance, the owner would have had to pay the legal fees to remove the forged deed from their title. Even worse, the buyer would be out $400,000, the amount they paid for the property. How does the cost of an attorney opinion letter compare with title insurance? The cost of a title insurance policy varies based on the state where the property is located, the value of the property, and the policy type. However, research found the average cost of title insurance to be 0.42% of the property’s purchase price [3] [4] . For property valued at $318,000 (the average purchase price in the research), the average title insurance premium would be $1,337. A title insurance cost calculator is available here. The cost of an attorney opinion letter varies by company, but one range is between $695 and $995 for a purchase transaction [5] .

The purchase of a home may be the biggest investment you ever make. Before you start shopping for a home, it’s a good idea to set a budget, save for a down payment, make sure your credit is optimal, and get preapproved for a mortgage. You may want to hire a real estate agent for assistance in navigating the real estate market and homebuying process.

The cost of a title insurance policy varies based on the state where the property is located, the value of the property, and the policy type. Based on research by the Federal National Mortgage Association (Fannie Mae), the average cost of title insurance was 0.42% of the property’s purchase pricetitle insurance [1] [2] . In comparison, the average cost of homeowners insurance was 2.92% of the purchase pricetitle insurance [1] [2] . A title insurance cost calculator is available here. Title Insurance is Long-Term Protection for a One-Time Payment Unlike other types of insurance, you only pay for an owner’s title insurance policy once, usually at the time you purchase your property. In many states, the seller pays for the owner’s title insurance policy. This policy covers you for as long as you own the home, and even covers your heirs who inherit the property. After you sell, your policy may also cover you if you’re sued by your buyer or another owner because of a problem with the title. For a single payment, you may have coverage for years, or even decades. Title Insurance Helps You Avoid Claims Claims are only filed on around 3-5% of title insurance policies [3] . Title claims are uncommon because the title insurance process does most of its work upfront. Before property is sold, the title company that will issue the policy performs a title search of the public land records, where deeds and other documents that affect property interests must be filed. A title examiner reviews the property’s history to determine who owns the property and if there are any potential challenges to your future ownership, like deed errors, missing owners, or lienstitle insurance . If any errors or problems are found, the title company works to resolve them before you buy the property. For example, the title company may discover that the deed into the seller is defective because it was not signed by all prior owners of the property. The title company may try to locate the missing owner and have them sign a deed to fix the issue. According to a study by the American Land Title Association, title companies spend an average of 22-45 hours to close a transaction, depending on the difficulty [4] . This includes the work to research title and fix any issues. Title companies estimate that 36% of transactions are “difficult,” meaning they require significant non-routine efforts to clear title. 95% of the cost of title insurance goes toward expenses, and despite inflation, the cost of title insurance has decreased almost 8% since 2004 [5] . A large portion of the title insurance fee is for the work done to prevent you from ever experiencing a claim. This is different from other types of insurance, like homeowners insurance, where the bulk of the premium goes toward paying for future property damage that may be caused by an event like a storm or a fire. Unfortunately, you can’t pay in advance to prevent natural disasters! Title Insurance Gives Valuable Protection Despite the title company’s best efforts to identify all issues affecting your property, there may be problems that cannot be found in the public records, like hidden lienstitle insurance , that do not surface until after your purchase. There may be documents that affect your property that were not found in the title search because they were filed against the wrong property. Or a deed may be defective because it was forged by a criminal impersonating the true owner. Title insurance covers these problems. While title insurance may seem like just another expense on the closing checklist, title insurance provides long-term protection for your property. Its one-time fee is only a small portion of the overall cost of home ownership but includes valuable protection along with the efforts necessary to lower your risk of a stressful title problem in the future.

“Title” is the legal right to use or own property and title insurance protects you from legal challenges to your title. It’s different from homeowners insurance, which protects against future property damage that may be caused by an event like a storm or fire. Title insurance safeguards your property from hidden problems with your ownership that may be lurking in the property’s past. For example: You may not legally own the property you paid for because of fraud. Someone else may still have an ownership interest in your property because they never signed a deed to transfer the property. This could happen if your property was previously owned by a married couple, but one spouse did not sign the deed when the property was sold. There may be lienstitle insurance against your property, like unpaid taxes or a child support judgment against a prior owner of the property. Even if a lien is for the debt of a prior owner, the lien stays with the property until the debt is paid, becoming a problem for future owners. There could be document errors that affect your ability to sell in the future. For example, your deed may not have been properly notarizedtitle insurance or witnessed. An owner’s title insurance policy covers 10 to 33 different title problems (depending on the policy type) that can impair your ownership. The policy also covers defense costs, which means that the title insurance company will pay for the legal fees to defend your title.