What is Title Insurance and When is it Useful?

If you have purchased or sold real estate, you have likely heard about title insurance. In Illinois, the seller of real estate is customarily responsible for purchasing and delivering a title insurance policy to the buyer. This specific form of insurance involves a policy specially designated for the benefit of the future owner, and sometimes a policy for the lender if the property is being financed. But, what does this title insurance do?

Much like car insurance protects your vehicle, title insurance is designed to protect the real estate asset which is owned. The difference is that car insurance protects against future incidents whereas title insurance protects against past claims that may challenge the sale of the property or the ownership interest. For instance, if an individual came forward after the sale and claimed to have a stake in the property, the title insurance would protect both the buyer’s (now current owner) interest and lender’s interest. Coverage limits for policies for the buyer, known as an Owner’s Policy, are determined based on the purchase price of the home. Then, typically a lender’s policy insures the lender’s interest up to the loan amount. Another feature that is unique is that each policy only requires a one-time payment due at the time of closing.

Attorney’s for sellers in Illinois secure title insurance through a title company for the buyer in a real estate transaction. Attorneys acting as title insurance agents are tasked with reviewing information about the current owner(s) and buyer(s), along with details of the history of the property. Attorneys and the title insurance companies on whose behalf they work, ensure that the title provided to the buyer at the closing is free from errors, liens, judgments, or easement issues. This is also known as a “clearing title” or producing a “clean title”. After the transaction has concluded, the title company will issue a Title Insurance Policy to the buyer(s) along with the recorded deed.

We hope that this article demystifies the purpose of title insurance.  It is part of nearly all real estate transactions.  If you or someone you know is in the process of selling or purchasing a home or has a claim made against it by another, contact our office for high quality experienced representation.

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