Homebuyers – especially first-time buyers – are sometimes mystified by the need to purchase title insurance before they can close on their transaction. As an agent, you reassure them that title insurance will protect their property rights for as long as they own the home.

However, how it works and why it’s worth paying for is more complex than many people realize. To help you help your buyers understand the value of title insurance, here are seven misconceptions cleared up:

1. There is one type of title insurance – There are two types: an owner’s policy and a loan policy. The owner’s policy protects the homeowner against loss or damage in the event a covered title defect. The loan policy protects the mortgage lender against such issues until the mortgage is paid in full.
2. Title insurance provides minimal protection – On closing, the buyer receives title to the property. For this to happen, a search is conducted by a title company to review the history of the property and uncover any title defects – issues that might limit the buyer’s ownership. But even after a search of public records, there could be a hidden title defect, such as a forged signature, which could be discovered years after the purchase. If that happens, title insurance offers protection.
3. Title insurance adds to your monthly payment – Title insurance is a one-time cost the buyer pays for when closing on a home. The cost is based on the purchase price of the home and accounts for only a small percentage of the closing costs.
4. An all-cash purchase eliminates need for title insurance – An all-cash purchase eliminates the need for a lender’s policy because no lender is involved. But the owner’s policy will still protect the buyer against the risk of unknown title defects.
5. Title insurance and homeowner’s insurance are the same – Homeowner’s insurance protects against loss or damage caused by an insurable incident. Title insurance protects the buyer’s investment.
6. Buyers cannot choose the title company – If a federally related mortgage loan is involved, and unless the seller pays for the policies, the Real Estate Settlement Procedures Act (RESPA) ensures the buyer may choose the title company.
7. Title policies are rarely used – In any given year, according to the American Land Title Association (ALTA), the title industry may spend more than $600 million defending and compensating policyholders who file claims.
   

---

Sources: ALTA, as quoted in StackExchange, personal finance and money

               Various articles posted by title groups debunking title policy myths

This material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. This material is not intended to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice

 About Bobbi Pronin

Bobbi Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.

Bobbi is not an employee of Anywhere Integrated Services or affiliated with its title companies.