Some title issues that may arise that are covered by title insurance include:
Naughty Neighbors: Your neighbor has built a shed, garage, pool, driveway or deck that is partly on your property.
Hidden Heirs: Perhaps the previous homeowner passed away or there was another family member with ownership rights to the house that wasn’t notified the house was being sold. You could lose out big time if the house was sold to you without clear title.
Unpaid Taxes: Although the title company will check for past due taxes, perhaps the tax collector’s office accidentally provided the wrong information (and yes, it happens) and mistakenly omitted or miscalculated the amount owed. Guess who pays for that mistake? Hint: it’s not the municipality or the title company – it’s you.
Mystery Mortgage: Just like with a lien or unpaid taxes, it’s possible that a title search may not turn up another mortgage on the property until after the closing has happened.
Had you not purchased title insurance, you may be left with negotiating with the neighbors, paying the lien, taxes, or mortgage. Going to court to avoid paying these items can often exceed the cost of these items themselves. And remember, there is a difference between an owner’s title policy and a lender’s title policy. The lender will require you to purchase a lender’s policy to only protect their interests in the property, not yours.
Title companies and municipalities use the best of their abilities to avoid the above situations. However, things happen, often out of our control. No one purchases automobile insurance hoping that they will use it someday! The same goes for an owner’s policy of title insurance. It should be purchased to protect the biggest – and often most important – investment of your life, your home.