Title insurance is different than most types of insurance such that it covers events that have already happened. Title insurance is insurance guarantees that you own the home you are purchasing, informs you of any liens or encumbrances on the property, and protects you from any unknown claims of ownership or interests in the property.
Before title insurance will be granted, a title search must be performed. A title search will check to see that the seller of the property is the only owner of the property, will check for banks that may have an outstanding mortgage on the property, and will search for liens and unpaid taxes.
The list from a title search can be daunting, which is why most title insurance companies require a qualified third-party to do the title search in order to ensure that any of the previously mentioned issues are taken care of, or at least accounted for. The title search minimizes the risk of the insurance company offering the title insurance, which allows them to offer it for a low, one-time fee.
If a proper title search is not done and title insurance is not purchased, the buyer could end up buying a house with a large lien on it, potentially bankrupting the buyer. Even worse, the buyer could buy the house from a seller that was only a partial owner or not the owner at all.
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