I Always Thought Title Insurance Was a Waste of Money Until This Happened to Me

I've bought several houses throughout my life, and each time I buy a house, I have been mildly annoyed at the fact that I have had to pay for title insurance. Title insurance is required by mortgage lenders. It's a policy that protects against competing claims on a home.

See, when you buy a property, you can only get the ownership interest that the people selling it to you have. If there's a problem with their ownership -- such as an easement on the property they don't disclose that reduces its value -- you would inherit that issue.

Now, companies that provide title insurance do a title search and check for competing claims before they give you a title insurance policy. And in this day and age of digital records, I thought that should be sufficient and that it was silly to get stuck paying several thousand dollars for a title insurance policy when it was so unlikely that there would be a surprise claim.

However, that all changed with the home I'm in the process of buying.

Here's why I now believe title insurance is really important

I am currently involved in a long process of buying a home from some investors who purchased it in foreclosure. The home closing has been held up multiple times, as the sellers are having a hard time getting liens off the property. That's not what made me glad for title insurance though, since the title company identified all of these claims and is requiring the sellers to clear them up before the purchase can be finalized.

The thing that made me glad I have title insurance was when the former owner of the property showed up. Our sellers are allowing us to stay at the house before closing since it's their fault we're delayed, and we were outside our home one day when the former owner came by.

She claimed she still owned the home and was involved in a lawsuit to get it back -- and that this had worked for her several times before. A review of court records showed that she had, in fact, had several foreclosure auctions canceled -- although the most recent one was a final sale and she didn't own the house anymore.

The issue, though, is that if she did make a claim, we could be stuck potentially defending it or losing money. But having title insurance would protect us against those losses. Remember, a home is a very expensive purchase. You simply can't take a chance of something unexpected happening with your ownership rights and not have insurance to protect you in case that occurs.

While it looks like that shouldn't happen in our case (since the people selling us our house have taken care of the issue), there's always a chance of a problem after closing, and I'm glad title insurance will protect us if the worst happens.

Do not go without title insurance

Mortgage lenders require that you buy a lender's title insurance policy. However, buying an owner's title insurance policy is usually considered to be optional. While it is optional, though, the reality is that you never know when something could go wrong. And if it does, you don't want to get stuck with legal fees or paying someone else's debt.

So if you're in the process of buying a home, make sure you look over your home-buying budget ahead of time so you know you can afford this expense. While paying a few hundred or a few thousand dollars for a title insurance policy may be a bummer, it's a whole lot better than being at risk of losing much more money than that after getting a mortgage loan and completing your home purchase.