The majority of the one-time title insurance premium covers the cost to discover, identify and repair events that occurred in the past. Before a policy is issued, a title agent examines the history of a property contained in public records, where they find issues in one out of every three title searches. In order to make sure a homeowner has clear rights to a property, the title agent will scrutinize prior deeds or mortgages, divorce decrees, court judgments, delinquent taxes and child and spousal support payments, vesting, covenants, conditions and restrictions, general encumbrances, and utility or other kinds easements.

Because of these preventive measures, title insurance is fundamentally different from all other forms of insurance, which charge yearly premiums to provide insurance protection for future events.

“Besides minimizing the possibility that title hazards will threaten ownership or use of property, the concentration on risk elimination greatly reduces the number of claims to be defended against or satisfied by the insurer,” Pfotenhauer said. “The curative work performed by title agents also minimizes the fear, disruption and distress that title claims have on homeowners.”

One way to compare title insurance to other lines of insurance is to imagine if a homeowner’s insurance agent came into a home and inspected all of the wiring at no additional cost to the owner. The agent then repaired any and all faulty or frayed wiring at no cost and guaranteed that none of the wiring that was repaired or any wiring that the agent could not see, would cause a fire. Finally, the agent charged a one-time fee for the inspection, repairs and guarantee that would be in effect as long as you or your heirs owned the property.

“The title industry finds the faulty wiring, fixes the faulty wiring and charges a one-time premium to guarantee its work, based on the value of the property,” Pfotenhauer said. “Without our services, the cost of closing a home loan would skyrocket,” Pfotenhauer said. “From a single-family home purchase to a multi-million dollar commercial transaction closing simultaneously in several cities, homebuyers and investors in this country will continue to receive the protection at a level of excellence unequaled anywhere in the world.”

Pfotenhauer said consumers have a choice in selecting the provider of their title insurance related services. They can either select their own title insurance company, or choose to designate a third party, such as a real estate agent, to make a recommendation.

“The American Land Title Association is working to help educate consumers about title insurance so that they can better understand their choices and make informed decisions,” Pfotenhauer said. “We urge homebuyers, regulators and legislators to check out our consumer website, www.homeclosing101.org, to learn more about title insurance and the closing process.”

About ALTA

The American Land Title Association, founded in 1907, is a national trade association representing more than 3,000 title insurance companies, title agents, independent abstracters, title searchers, and attorneys. With more than 8,000 offices throughout the United States, ALTA members conduct title searches, examinations, closings, and issue title insurance that protects real property owners and mortgage lenders against losses from defects in titles. ALTA member companies employ well over 100,000 individuals and operate in every county in the U.S., and several countries around the world.

American Land Title Association (ALTA)