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Why is it necessary to purchase title insurance?

The purchase of your home or another piece of real estate is a major investment that deserves every protection available. That's why companies sell title insurance to investors and homeowners - to ensure that the new owners are able to exercise and enjoy full control over their property after its purchase.

To understand why title insurance should be included with each real estate purchase, it helps to understand just how properties can become encumbered over the years.

Common types of encumbrances

Perhaps the most common encumbrance are mortgages. As most people are aware, anyone wishing to sell a property must first pay off the remaining mortgage on it. Liens are another common encumbrance on some properties that affect the right to a clear title for the owner.

Lienholders have a security interest on properties when someone owes them an unpaid debt. The property is the collateral they can seize in order to recoup some of their losses from the debt, Some liens are put in place by the government due to unpaid taxes. This can be at various levels - municipal, county, state or federal. However, in the event that a property is encumbered by multiple liens, a federal tax lien has precedence over all the rest.

Even brand new builds can be subject to liens, such as material man's liens from builders or others who were never paid for their labor or materials. One can't assume that because a property is newly built that it must be unencumbered.

Judgments are similar to liens, but result from court proceedings where defendants' properties can be seized by creditors to satisfy outstanding debts.

If a property is purchased that does not have a clear title, the purchaser is essentially buying the seller's burdens and old debts right along with the property. This negatively affects the market value of the property and can triple the sales price (or worse).

Non-financial encumbrances

Easements deal with the way another person can be allowed limited use of an owner's property, like a neighbor being permitted to draw water from a well on the owner's property or a utility company having the right to run a gas pipeline under a farmer's field. Some easements might allow the public unfettered access to a beach lying beneath your property.

Encroachments are a second type of non-financial encumbrance that can affect a homeowner's usage and rights to their property. For instance, someone may have erected a barrier across a road on your property so that you can no longer access hunting grounds. If you planned to build a hunting lodge on your land, this would be a major disaster.

Money well spent

If you failed to purchase title insurance when you bought your property and later learned that any of these scenarios affected your property, you could be in for a very expensive legal battle. Title insurance covers all of these problems for you, removing these obstacles.

To learn more, ask the attorney who is handling the purchase of your property to make sure you have included title insurance with your purchase.

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