Why do people buying homes need title insurance?

San Diego has one of the most valuable real estate markets in the country, with homes often fetching seven-figure price tags or even more. It is a big investment for an individual to purchase real property in the San Diego area. Most real estate transactions require a sizable mortgage. Lenders can help make costly San Diego real property more affordable, but they impose numerous requirements on any particular transaction.

One of the most common and sometimes expensive obligations when buying real property in San Diego is the requirement to purchase title insurance. Title insurance covers lenders and buyers if a third party claims an ownership interest in the future, and this insurance can sometimes cost as much as 1% of the value of the mortgage. Why is title insurance non-negotiable in most real estate transactions?

A lender may require protection

When a mortgage company or other financial institution extends hundreds of thousands or millions of dollars to help someone purchase real property, the business needs to have protection limiting its financial exposure. The property itself serves as the collateral for the loan, which means that the loss of the property due to a title claim could cause a major financial setback. A lender’s policy is a form of title insurance that protects the capital a financial institution is to allow someone’s purchase of real property.

Buyers also have a lot to lose

Cash buyers can potentially forgo title insurance but may not want to do so. After all, they will have their own resources to consider protecting. In the event of a title claim brought by someone who believes they have an ownership interest in the property, every cent that someone invested could be at risk.

The purchase price and the value of any upgrades made to the property are all vulnerable in a scenario involving a title claim in the California civil courts. Although title insurance premiums can be a bit pricey when purchasing a high-value property, the coverage they provide can help people afford the costs associated with title litigation. The policy can also reimburse the lender and the buyer if the person bringing the claim prevails in court.

If you are facing a dispute regarding a title claim on real estate – whether you have title insurance or not – seek the advice of legal counsel. There is too much at stake.