Title Search vs. Title Insurance

What’s the difference between a title search and title insurance? You’ll hear the terms come up as you get closer to closing on a new home, so it’s good to know exactly what they are. 

Both title search and title insurance are obviously related to title itself, the legal rights to the property. Title transfers from the seller to you when you close. 

Title search is the background check on the property. It’s the process of investigating your property’s history. Title insurance protects the lender and buyer from title disputes and guarantees, in a way, the results of the search. 

They are not necessarily different, then. Instead, they work in tandem to ensure your claim to the property remains for as long as you own it. 

What Is a Title Search?

Vehicle history is something at the forefront of your mind when shopping for a used car. You want to know how many accidents the car’s been in, what kind of repairs have been made (transmission? brakes? engine problems?), and how long it’s been on the road beyond the mileage. Your dealer will produce a vehicle history report if you ask. If you’d like a third-party opinion, you can send the vehicle identification number to a trusted mechanic. They can then run a report. 

Title search, conducted by a title company, is something similar. It’s an investigation into the history of a property—ownership and transactions—to confirm there are no legal impediments preventing you from purchasing it. (Chief among those, does the current owner have the right to sell it?) 

Here are some things title searches can turn up:

• Nothing: This is your hope, although it’s no guarantee problems over title won’t arise (we’ll get to that). 
• Liens: If previous owners have unpaid debts, banks or lenders can place liens on the property as collateral. 
• False or inaccurate documents: It’s self-explanatory. Somewhere along the way, paperwork was sloppily completed or altered with the intention of committing fraud. 
• Boundary or Survey Disputes: You believe your property line is one place. Your new neighbors disagree and have a map that backs up their claim.
• Easement Issues: In some way, you’re prohibited from manipulating your property freely.

And more. Title issues aren’t uncommon, so you should be prepared for them. The right title company will make the process easier and faster. It’s one of the reasons you should prioritize experience and responsiveness over cost when choosing a title company. You’ll want to know about issues as quickly as possible, and you’ll want them resolved—which is where title insurance comes in. 

What Is Title Insurance?

Let’s start with a hypothetical. Your title search comes back clear, so you decide that you don’t need title insurance. After all, you’ve been assured that the property is yours legally. But that presupposes that nothing will come up after the search. In some cases, issues slip through the cracks—no one is perfect. 

Other scenarios, you can’t really predict, but you want to be prepared for them. The most extreme of these is someone—usually an ex-spouse or relative of the previous owner—comes forward with a claim to the property. The claim might be dubious, but you still need to address it (and you want to be covered), because if a claim arises that the title insurance covers, your title company is typically obligated to cover the cost of any litigation. 

Now, it’s important to note that there are two kinds of title insurance. Lender’s title insurance is almost always required upon closing. Although you pay for it, this type, as the name implies, only covers your lender. To cover your claim to the title you need an owner’s title insurance plan. (Note: In some areas, it’s customary for the seller to cover the owner’s title insurance for the buyer.) 

In both cases—lender’s and owner’s—title insurance is a one-time purchase for a policy that lasts for as long as you own the property. 

Now that you know what each term means, get back to your realtor and lender and solicit their advice for finding the right title company. Don’t be afraid to ask them questions. They’re resources as much as they’re professionals.