Title insurance was born and bred in America back in the late 1800s to protect the buyers of real estate and mortgages from defective titles, liens, and encumbrances. Should a title transfer to the buyer and it turns out to be other than what was represented or the new owner should suffer some kind of financial loss because of it, the policy steps in to reimburse the client for the loss plus related legal expenses up to the face value of the policy.
What brought it about?
Fraud is the simple answer. Fraud used to come in many forms. In some cases, a homeowner would sell the house to multiple clients at the same time. One or more of the homeowners would be sold a fake title. When push came to shove, the fight would come to the recorders’ offices where records of official sales are kept. If one of those hoodwinked people couldn’t prove that the title had indeed transferred to them, then they were out of luck. They may be able to get something out of the court system, but it would take some time to hear and be proven, especially if the seller in question skipped town.
This and other illegal sales were being made throughout the U.S. It inspired the revolution of the title insurance policy.
Before title insurance was thought up, it was up to the purchaser to investigate the validity of a home’s title. If they purchased a home only to find that the title was a fraud, he or she would be out of luck. Insurance companies jumped on this opportunity and title insurance has been popular ever since.
The purchasers, benefited from this arrangement, but they weren’t the only ones. Insurance companies also benefited from the deal, as the fraudulent sales didn’t come close to making up a majority of the sales and yet buyers wanted their deals insured. Many plans would simply go unclaimed. It wasn’t long before another party’s interest was piqued, one who was just as much at risk in these deals as the buyer: the mortgage or VA home loan lenders.
This is where lenders come in.
The policy has gained such traction that some mortgage or veteran home loan lenders could require you to purchase it before they give you a loan. This kind of deal making is common in auto insurance as well.
Should you take out a loan to purchase a vehicle, you would likely be required to cover it with the best insurance around. The legal limit of auto insurance often ensures you cover the cost of bills relating to others affected by a collision. It doesn’t usually cover your bills should you or your vehicle be injured when you’re at fault. That’s not good enough for banks who would lose money should you total the car and stop paying.
The same concept holds true for the banks and VA home loan lenders. Since they have an interest in the financial stability of the home, they often want to ensure their investment is well in hand: protected from every kind of problem.
Title insurance is an extremely helpful policy to take out when purchasing a home. You never want to take chances when making a purchase as large as a home. Title insurance helps minimize the risk of huge financial loss.