Don't skimp on title insurance

Most people are trying to cut costs these days. Some even wonder if it's necessary to pay for title insurance when they buy or sell a home. Skimping here could end up costing plenty if you discover a title defect after you own the property.

Title insurance is paid for once at closing and covers the property for as long as you own it. It protects the purchaser from financial loss deriving from defects in the title to the property. The premium cost varies depending on the title insurance company, and is usually based on the purchase price.

Who pays the title insurance premium often depends on local custom and can vary from one county to the next. For instance, if you were to sell a home in Los Angeles County where the seller usually pays for title insurance, and buy in Alameda County where the buyers usually pay, you'll pay for title insurance twice during one move. Buyers typically pay the premium to cover their lender's interest in the property.

The payment of title insurance is not set by law and can be negotiated between the buyer and seller, although local custom usually prevails. Whatever is agreed to in the purchase agreement will dictate who pays the premium.

A buyer who was an attorney thought title insurance was expensive and a waste of money. Given his legal expertise, he decided he'd search the title record himself to avoid paying the title premium. In the end, his agent talked him out of the do-it-yourself approach based on the risks involved.

Title insurance companies search the title to a property to make sure that there aren't any defects in the chain of title. They also look for liens and easements recorded against the property, as well as establish who has marketable title to the property.

In one case, the title company discovered when searching the chain of title that when the property sold to the current owner, an heir to the estate had not signed the deed transferring title. This meant that person still had rights to the property.

Fortunately, the title company located the heir, who was reputable. She relinquished any interest she had in the property. If the heir hadn't been cooperative, the current owner could have made a claim against the title insurance company that issued title insurance to him when he bought the property. ...CONTINUED

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