One of the most expensive items on your home purchase closing statement is title insurance. If you’re getting a loan, the lender will require a policy on the loan. But you may not be required to purchase a homeowner’s policy. Should you skip it?
In a word, no. The owner’s title policy will protect you against future claims against the property. Though the title company does a search through public records prior to the closing, unexpected things can pop up. Without title insurance, you’re flying without a net.
But it’s easier to make a case for title insurance after you consider the various possible scenarios that can occur. You won’t want to be flying without the title insurance net if one of these things happens. Here are my top 10, courtesy of Chicago Title:
1. A deed or mortgage in the chain of title may have been forged.
2. The testator of a will might have had a child born after the execution of the will, a fact that would entitle the child to claim his or her share of the property.
3. Title transferred by an heir may be subject to a federal estate tax lien.
4. There may be a defect in the recording of a document upon which your title is dependent.
5. Claims constantly arise due to marital status and validity of divorces. Only title insurance protects against claims made by non-existent or divorced “wives” or “husbands.”
6. Someone may claim he or she has an easement over part of your property.
7. Title transferred by an heir may be subject to a federal estate tax lien.
8. The deed is apparently valid, but was actually delivered after the death of grantor or grantee, or without consent of grantor.
9. There may be “mechanics’ lien” claims (securing payment of contractors and material suppliers for improvements) which may attach without recorded notice.
10. Errors in tax records (mailing tax bill to wrong party resulting in tax sale, or crediting payment to wrong property).
You can expect title insurance and escrow fees to be approximately 2% of your purchase price.