Why Title Insurance Matters When Buying Land

Buying land is a significant investment, and protecting your ownership interest should be an important part of every real estate transaction. One of the simplest and most cost-effective ways to do that is through owner’s title insurance.

Most buyers understand the importance of inspecting a property, reviewing a survey, confirming access, and evaluating the land itself. What can be easier to overlook is something even more fundamental: Does the seller have clear title to everything you are buying, and could someone challenge your ownership in the future?

A Title Problem May Not Appear Until Years Later

One of the unusual things about title problems is that they may remain hidden for years.

You can purchase a property, use and enjoy it without a problem, pay the property taxes, improve it, and eventually decide to sell it. It may not be until the next closing attorney performs a title search that an old problem is discovered.

The problem might have originated several owners ago and have nothing to do with anything you did.

This is particularly important with rural land, where some properties have remained in families for generations and may have complicated ownership histories. Old deeds, estates, liens, improperly recorded documents, and heirs who were inadvertently omitted from an earlier transfer can potentially create a cloud on the title.

What Happens When an Heir Was Missed?

Consider a property that passed through an estate many years ago.

The family believed all of the ownership interests had been properly transferred and the property was later sold. Years afterward, someone discovers that an heir or ownership interest was overlooked during the estate or title process.

Suddenly, there may be a question about whether the subsequent owner received completely clear title.

Situations like this are uncommon, but they illustrate why simply having a title search performed at closing doesn't eliminate every possible risk associated with a property's history.

A Previous Closing Doesn't Necessarily Mean There Can Never Be a Problem

It is easy to assume that because a property was previously purchased through an attorney and went through a normal closing, its title must be perfect.

Unfortunately, title issues can sometimes surface even after previous transactions.

A title examination is designed to identify problems in the public record before closing, but some defects can be difficult or impossible to discover through an ordinary title search. That is one of the reasons owner's title insurance can be so valuable.

If a covered title claim later arises from something that existed before you purchased the property, an owner's title insurance policy can provide protection subject to the policy's terms, conditions, and exclusions. Depending on the circumstances and coverage, that can include the cost of defending your title against a covered claim.

Without title insurance, the property owner could potentially be responsible for the legal expense of defending his or her ownership interest.

Cash Buyers Shouldn't Overlook Title Insurance

Title insurance can be particularly important to discuss when purchasing land with cash.

When a lender is involved, the lender typically requires a lender's title insurance policy to protect its financial interest in the property. However, a lender's policy protects the lender—not necessarily the buyer's equity in the property.

A cash buyer doesn't have a lender imposing those requirements, which can make it tempting to view title insurance as an unnecessary closing expense.

But consider what is actually being protected.

If you are paying $100,000, $500,000, or $1 million for real estate, that property represents a substantial asset. Owner's title insurance is generally a one-time premium paid at closing to help protect your ownership interest against covered title defects.

Compared with the value of the real estate being purchased and the potential cost of litigating an ownership dispute, it can be one of the more economical protections available to a land buyer.

Due Diligence Isn't Just About the Land

When we help buyers evaluate rural property, there are many things to consider. Buyers may need to investigate access, boundaries, surveys, utilities, soils, timber, wetlands, zoning, easements, restrictions, and the property's suitability for their intended use.

But good land due diligence shouldn't stop with the physical property.

Protecting the ownership interest you are purchasing is every bit as important as understanding the land itself.

Before closing on any real estate purchase, buyers should discuss the title examination, title insurance options, policy coverage, exceptions, and any identified title issues with their closing attorney or qualified title professional.

At Mossy Oak Properties Land Professionals Group, we believe informed buyers make better landowners. Understanding title insurance is one more step toward protecting the investment you are making in land.

This article is provided for general informational purposes and is not legal advice. Title insurance policies, coverage, exclusions, and real estate laws vary. Buyers should consult their closing attorney or qualified title professional regarding their individual transaction.