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Title Insurance: What is it, and is it a good idea?

Title insurance is a kind of indemnity insurance for property owners, often called an Owner’s Policy. It can usually be purchased at the close of the sale for a one-time fee and covers the amount of the real estate purchase. It remains valid as long as the owner or his/her heirs would like it to.

The first title insurance company was formed in Pennsylvania in 1853. Before that, the owner of the property was responsible for any problems with the validity of a land title. If the land title was shown to be invalid, he would lose his investment. A few more common hidden problems with title validity include:

•  Forgery
•  Undisclosed heirs
•  Mistakes in examining records
•  Errors or omissions in deeds

The cost of title insurance varies widely depending on state governments, which regulate the rates. Title insurance in California is usually slightly higher than average across all states.

So, is it a good idea to purchase title insurance? Unfortunately, there isn’t a perfect answer to this. For many buyers, it’s a good idea. Others feel that the risk of title invalidity is too low to merit the purchase of title insurance. But strange things can happen.

For example, this past May, a previously unrecognized Native American tribe in Utah laid claim to millions of acres of land along with gas, oil, water, and mineral rights on the property. Of the four counties affected by this claim, only one fought it.

In the 250-page claim, the tribe’s chairwoman claimed that the land had been allocated to the Shoshone tribe in 1861, and members of the tribe had been living on the property ever since. It would not be surprising if private property – perhaps a large amount of private property – was affected by this sudden development. How the government of Utah will handle the claim is still unclear. It is still possible that the tribe won’t gain ownership of the real estate, but there will definitely be a good deal of litigation.

Although Los Angeles County does not have many Native American tribes, title insurance protects you from other risks. When buying a home, many people find title insurance superfluous, especially if they know the previous owner lived there for 30 years. We disagree: homes have usually been bought and sold by many people, and it’s impossible to guarantee that the transaction was perfect each time. Title insurance has also saved many homeowners from unknown heirs and even foreclosure. Likewise, when buying land, especially as a long-term investment, the benefit and peace of mind of insurance is worth the cost. Title insurance is a way to protect your investment and yourself.

If you work with responsible sellers and brokers, you will be able to shop around for title insurance, refuse add-on fees, and save in other ways. If you work with us to purchase land, we will discuss the benefits of title insurance and provide you with personalized advice based on your purchase.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.