The emergence of this type of insurance policy is partly due to the unprecedented development of the real estate sector, but also to the uncertainties regarding the legal right over immovable property.
Registration of the ownership right on immovable property is relatively complicated and requires a long period of time, not being able to offer enough guarantees to the buyer that the deed of acquisition is beyond any claim. Moreover, in today’s real estate world, corner-cutting sellers, sloppy foreclosure procedures and flat-out fraud are more prevalent than ever, which means the risk of title issues arising is much higher than one might expect. This is where title insurance comes in.
What is title insurance and why is it necessary?
Title insurance is a general insurance intended to cover both legal expenses in case of claims and the recovery of the damage suffered by the insured. In other words, title insurance consists in the closing of a policy by which the insured transfers, in exchange for a sum of money, the risks related to the defects of the title to the insurance company. The insurance policy can cover many risks, from unintentional errors to fraud, forged transfers, or defects in the building permit, and it is a wise investment for any homeowner.
When it’s needed, title insurance can save homeowners thousands of dollars in legal fees or even compensate for the forfeiture of the entire property. In case of problems that may arise related to the property title, the costs, taxes and other expenses of judicial procedures related to protecting it (including lawyer’s fees, expertise etc.) are paid by the issuer of the policy. It should be mentioned that carrying out the legal procedures for defending the title of property (and indirectly of the ownership right) is mandatory. In the situation where the title is canceled, despite the due diligence, and the property right is lost, the insurer will reimburse the homeowner the amount the policy was signed for (which is typically the purchasing price of the building plus an indexation).
Considering all this, even though title insurance is an extra cost added to the already large expenses involved in purchasing a home, experts agree that it is, indeed, necessary. Not having title insurance puts homeowners at serious risk, and the costs associated with title claims far outweigh the one-time payment needed to purchase an insurance policy.