What is Title Insurance and Why Do I Need It?
Title insurance is not unlike other traditional insurance products such as home, auto & life insurance. Title insurance serves to protect real estate buyers and lenders by shifting the risk of loss arising from of certain covered matters set forth in their title insurance policies from buyers and lenders to a title insurance company. What makes title insurance unique however is that is covers claims or losses due to defects in title that could arise after the closing, but that were created by some past event completely outside of your control (i.e. prior to your purchase of the property). For example, a purported former owner may have forged a signature on a prior deed. Or, a former owner may have failed to pay real estate taxes for a period of time, creating a lien on the property which was never resolved. Similarly, a former owner may have hired contractors to perform work on the property that was never paid for, resulting in a mechanic’s lien being placed on the property. There could also be unsatisfied mortgages or judgments against past owners. Each of these instances could greatly jeopardize the single most important investment you make in your lifetime by making title to the property unmarketable, decreasing the value of the property or otherwise adversely affecting your use of the property.

Unlike other forms of insurance whereby you are obligated to pay annual premiums if you want the particular insurance to remain in effect, the initial title insurance premium, which is typically paid in full at closing, is your only title insurance cost so long as you or your heirs own the property. One of the most important title insurance policy provisions is the obligation of the title insurer to defend you as the new owner, at its expense, against any lawsuit which attacks your title to the property or seeks monetary damages for liens arising from the period of time prior to your ownership of the property, provided however that such a claim is based on a defect covered under the terms of the policy. Therefore, it is extremely important that you or your real estate attorney carefully review the title insurance documentation being provided to you by the Seller to understand what is covered and what is not. In a typical real estate transaction, extended coverage is typically requested and provided to cover against all foreseeable title defects.

It in typical real estate transaction, the title insurance company will issue 2 separate policies covering 2 separate entities: the buyer and the buyer’s lender, if applicable. Most form real contracts in Illinois will set forth who pays for the cost of the title insurance premiums. In Illinois, the form contracts most widely used typically call for a buyer’s title insurance policy to be paid for by the seller at closing. In turn, the buyer usually pays the cost or his or hers’ lender’s policy. However, a prudent buyer, particularly one buying a foreclosure or bank owned property should be careful here as some banks have unsuspecting buyers sign off on contract provisions or riders prepared by the bank’s attorney which, among other things, will force this payment obligation onto the buyer at closing.