Understanding Title Insurance

[Brandon Snyder]

Hey all, thanks for looking into my forum question.  I appreciate it.

I'm taking a real estate class at UCLA.  It's a good class with a good teacher, but the textbook doesn't provide much context.  That's where I'm hoping you all would come in.

I'm trying to wrap my head around title insurance.  I know it's a very good idea to have it (although not required by law) but I'm not sure I understand it.

In what instances would Title Insurance come into effect?  Specifically, what money losses could occur that Title Insurance would give you money for?

[Fred Heller]

Let's say John and Mary Smith own a home together in Bakersfield. Their marriage falls apart and they separate, but don't divorce. Mary moves to Boston for post-graduate work at Harvard. John stays behind and lives in the home in Bakersfield.

Subsequently John sets up housekeeping with Jane Doe. Eventually they decide to sell the house and move to Temecula. They sell the house and Jane illegally represents herself as Mary during the transaction. You are the buyer of the house.

Now fast forward a few years. Mary has finished her Phd and moves back to Bakersfield to discover that John has sold the house without her consent. Legally, she still has ownership interest in the property and could sue to claim it, and you would probably lose. But you would still be on the hook for the mortgage which you signed.

Title insurance will pay to defend you right to own the house, or will pay you for the loss if you don't prevail. If you don't have title insurance you're SOL.

That example is literally one from one of my classes that I still remember to this day. Hope it helps.