When you buy a home, refinance, or purchase any property with a mortgage, you will likely encounter several fees as part of the transaction. Some of these fees may include recording fees, settlement fees, and title insurance. While many fees on a settlement statement are straightforward, buyers often wonder about the necessity of the title insurance fee.  

Title insurance is a policy that protects both buyers and mortgage lenders from potential financial losses due to defects in a property’s title. Without this protection, homebuyers could face costly legal battles, unexpected financial burdens, and even the loss of their property.  

Title insurance’s primary benefit is protecting homeowners from ownership disputes, in addition to protecting a lender if there is a mortgage involved. Prior to a buyer closing on a home or mortgage, a title search is conducted to verify that the seller has the legal right to transfer ownership. However, title searches can miss items affecting a property’s title, and past mistakes or fraudulent activities may surface after the purchase. Issues such as unknown heirs, forged documents, or undisclosed liens can arise, potentially challenging the buyer’s ownership. Title insurance provides coverage in such cases, ensuring that the homeowner retains legal rights to their property without facing financial loss.  

Additionally, title insurance offers protection against hidden defects in public records. Even with thorough title searches, errors in legal documents, incorrect property descriptions, or misfiled deeds can create complications in property ownership. For example, a mistake in a previous deed might give another party a claim to the property, or an unpaid tax lien could result in legal action against the new owner. Title insurance protects homeowners against such issues, and the insurance company will cover the legal expenses necessary to resolve any disputes.  

Another significant benefit of title insurance is its role in protecting mortgage lenders. Lenders require title insurance to secure their financial interests when issuing a mortgage loan. A lender’s title insurance policy protects the financial institution from losses if a title dispute arises, reducing the risk of lending money for real estate transactions. As a result of this requirement, homeowners indirectly benefit, as it helps streamline the homebuying process.  

With lenders confident in the property’s title, buyers can secure loans more efficiently and avoid potential obstacles in closing their transactions. If a home buyer purchases with cash, title insurance isn’t required, but a buyer is taking a huge risk without a title insurance policy.   

Title insurance is a crucial safeguard for homeowners and their lenders, protecting against ownership disputes, hidden defects, and financial risks. It’s also a minimal cost to protect a considerable investment. Title fraud is becoming more common as scammers try to obtain fraudulent mortgages in a homeowner’s name, forge deeds to sell vacant properties or land, and fake claims of ownership when it comes time to sell a home.  

Title insurance ensures buyers can confidently invest in real estate without fear of unexpected claims or legal battles. As real estate transactions continue to become more complex, title insurance remains an essential tool in securing property rights and providing long-term security. Investing in title insurance is wise for any homebuyer looking to protect their most valuable asset, providing peace of mind to a new owner.  

Brian Toohey is the chief executive officer for the Columbia Board of REALTORS.