Eric Sanders, Chicago Real Estate Attorney, Explains How Title Insurance Works and Why You Need It
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Eric Sanders, Chicago Real Estate Attorney, Explains How Title Insurance Works and Why You Need It

Buying a home or property is one of the most significant investments you’ll make in your lifetime. Amid the excitement, it’s essential to ensure your ownership rights are protected. Title insurance is a critical tool in safeguarding your investment, yet many buyers are unfamiliar with how it works or why it’s necessary. Eric Sanders, a leading Chicago real estate attorney, breaks down the basics of title insurance and its importance in real estate transactions.

What Is Title Insurance?

Title insurance is a policy that protects property buyers and lenders from financial loss due to defects in the property’s title. Unlike other types of insurance that protect against future events, title insurance focuses on past events that could affect ownership rights. These issues might include:

  • Outstanding liens: Unpaid debts attached to the property, such as taxes or contractor fees.
  • Ownership disputes: Claims from previous owners or heirs who were not properly accounted for.
  • Clerical errors: Mistakes in public records or legal descriptions of the property.
  • Fraud or forgery: Instances where documents were falsified to transfer ownership.

Eric Sanders explains that without title insurance, buyers could face significant legal and financial challenges if such issues arise after the purchase.

Types of Title Insurance

There are two main types of title insurance:

1. Owner’s Title Insurance

This policy protects the buyer’s ownership rights to the property. It ensures that if a title issue arises, the buyer is shielded from financial losses and legal fees. Owner’s title insurance is a one-time purchase, typically paid at closing, and remains valid for as long as the buyer owns the property.

2. Lender’s Title Insurance

Required by most mortgage lenders, this policy protects the lender’s financial interest in the property. Lender’s title insurance is also a one-time cost but only remains in effect until the loan is paid off or refinanced.

While lender’s title insurance is mandatory for buyers taking out a mortgage, owner’s title insurance is optional but highly recommended. “Skipping owner’s title insurance may save money upfront, but it’s a gamble that could cost you significantly in the long run,” says Sanders.

How Does Title Insurance Work?

The process of obtaining title insurance involves several key steps:

1. Title Search

Before issuing a policy, the title insurance company conducts a thorough search of public records to identify potential issues. This includes examining deeds, mortgages, tax records, and court judgments.

2. Addressing Title Defects

If the title search uncovers any issues, they must be resolved before the transaction can proceed. For example, unpaid liens may need to be cleared, or missing documentation might need to be located.

3. Issuing the Policy

Once the title is deemed clear, the insurance company issues the policy, providing protection against covered risks.

4. Claims and Coverage

If a title issue arises after the purchase, the title insurance company investigates the claim and covers legal expenses or financial losses up to the policy limit.

Why You Need Title Insurance

Eric Sanders emphasizes that title insurance is an essential safeguard for property buyers. Here’s why:

1. Protection Against Hidden Risks

Even with a meticulous title search, some issues may remain undiscovered. Title insurance provides peace of mind by covering unexpected claims.

2. Legal and Financial Security

If someone challenges your ownership rights, title insurance covers the cost of legal defense and compensates you for financial losses.

3. Compliance with Lender Requirements

For buyers using a mortgage, lender’s title insurance is non-negotiable. Securing owner’s title insurance ensures that both you and your lender are protected.

4. Long-Term Value

Title insurance is a one-time expense that offers lifetime coverage for the original owner. This long-term value makes it a wise investment for any property buyer.

Common Misconceptions About Title Insurance

Eric Sanders also addresses some misconceptions surrounding title insurance:

  • “It’s unnecessary for new construction.” Title insurance is equally important for new homes, as land ownership and construction liens can present risks.
  • “It’s too expensive.” While the upfront cost varies, the protection it offers far outweighs the potential financial consequences of title disputes.
  • “The lender’s policy covers me.” Lender’s title insurance only protects the lender—not the buyer’s ownership rights.

Title insurance is a vital component of any real estate transaction, offering protection against unforeseen title issues and ensuring peace of mind for buyers and lenders alike. Eric Sanders stresses the importance of understanding the role of title insurance and working with experienced professionals to secure your investment.

“In the complex world of real estate, title insurance is your safety net,” says Sanders. “It’s an investment in your financial security and your future.”

Whether you’re purchasing your first home or adding to your property portfolio, consulting with a knowledgeable real estate attorney can help you navigate the process with confidence.

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