What Is Title Insurance?

One part of your closing costs as a seller will be a title insurance policy. Lots of sellers ask what title insurance is and why in the world they are paying for it when it’s for the buyer.

According to the legal dictionary on Law.com, title insurance is:

“a policy issued by an insurance company guaranteeing that the title to a parcel of real property is clear and properly in the name of the title owner and that the owner has the right to deed the property (convey or sell) to another. Should a problem later arise with the title (such as an inaccurate description), the insurance company will pay the damages to the new title holder or secured lender or take steps to correct the problem.”

Upon the signing of a sales contract, we order title work through a title company. This company researches the title to the property and provides us with a commitment, on behalf of an insurer, to provide a title insurance policy upon fulfillment of several requirements.

So, why does the seller pay for the policy if it’s for the buyer? This policy ensures clear and marketable title to the new owner. No buyer wants to end up in a situation where another person stakes a claim in their new property - a title insurance policy guards against that.

When the buyer uses a lender for their financing, the bank is also issued a policy (at the buyer’s expense) to protect the bank’s investment in the property as well.

As a seller, you may be able to benefit from the title insurance policy issued to you when you purchased the property. If the policy is new enough, you may receive a credit towards the reissue of title insurance for the buyer.