Once you purchase a home and obtain a Home Financing, you will be required to obtain homeowners insurance. However, many potential homebuyers may not be familiar with another type of insurance, title insurance. So what is title insurance and why do you need it? Once you buy a home you are given a title, it then the owner's right to possess and use the property. It may be the homeowner who is selling the home or bank with a Home Financing on the property that has the title. It is also a possibility that a third party such as a homeowners association if the dues have not been paid or even the government may also have liens against the property for unpaid taxes.

Problems with the title can limit your use and enjoyment of the property, as well as bring financial loss. It is vital to not only obtain title insurance but to also have a  title search done to protect your interest. By doing a search, it will reveal if someone other than the owner of the property owns the title. This search can be done by examining public records to look up the history of property ownership. While you can easily do your own title search, if you are obtaining a loan to purchase the property, the lender will require that a qualified third party do the title search. The title search shows not only limitations on the use of the property and rights others may have in the property, but also liens or monetary obligations that are outstanding against the property. 

Title insurance is different than the standard insurance where you are covered in case of a future event. For example, if you get car insurance you are insured in case you have an accident, you buy health insurance in case you get sick.  Title insurance is different as it covers events relating to the title that have already happened. It does not cover anything that happens to the title after the date of issuance. For example if you have liens filed against the property for taxes that you have not paid, your title insurance policy is not going to help you. But, if the lien is for taxes not paid by someone who owned the house before you, then you may have coverage under your title policy.

A title company will do a title search on the property before issuing the policy to see if there are any problems with the title. This search is done in an effort to minimize the risks of offering insurance.  Problems such as deeds, wills, outstanding Home Loans, judgements, and tax liens can be located from the search and can typically be cleared up before the closing on the property. When these problems are not cleared they will often be listed as exceptions to the policy's coverage. You would then need to decide whether the property is still something you want to purchase given the known problems with the title.