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Why does home seller buy title insurance for the buyer?

I am selling my home, why do I need to purchase title insurance for the buyer?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

If you are selling your home you may ask why you need to buy title insurance for the person buying your property. You are the rightful owner of the property, after all, so why would you need to buy an insurance policy to prove that?

The answer is because you probably would not be able to sell your home unless you do. Lenders require that borrowers have title insurance to protect them financially if there is a property title error, such as an ownership issue or unknown liens or easements on the property.

From the property buyer’s perspective, they want to make sure that the seller actually owns the property and has a legal right to transfer the property. They also want to confirm that there are no ownership claims or liens against the property that could potentially interfere with the purchase or financing processes, such as unpaid taxes or a second mortgage that the property owner did not disclose.

Additionally, it is important for property buyers to verify the property lines, easements (access to all or part of the property granted to a third party), applicable zoning regulations, open building permits as well as any legal rights attached to the property, such as water, mineral or air rights.

Review What is a Title Report and Title Insurance?

In short, the home buyer wants to ensure that the property they actually take ownership of matches the property they offered to buy. This thorough approach prevents surprises that could potentially undermine the value of the property in the future.

All of the information about property ownership, specifications, liens and easements is outlined in the title report provided by a title insurance company or a real estate attorney. The title report, sometimes called a search or abstract, also identifies any issues, disputes or irregularities that need to be addressed before the property purchase closes.

For example, the report may identify an easement the property owner and buyer were unaware of. Perhaps a relative of the property seller has an ownership claim that is being litigated. Or there may be a one-time tax assessment the property seller must pay before she or he can transfer the property. While these are examples of potential issues, most title reports come back “clear” which clears the way for the property purchase and transfer as well as the issuance of the title insurance policy.

Issues are discovered through the title report process are usually resolved before the property is sold. In the rare event that a property ownership issue surfaces after the purchase transaction closes, title insurance protects the property buyer against potential financial loss. So buying title insurance for the property buyer provides peace of mind and financial protection for the new homeowner.

As the property seller you can offer input on selecting a title insurance company but due to state regulations, there is relatively little variation in pricing across insurance providers. The title insurance company is typically agreed to by the property seller's and buyer's real estate agents.

The good news is that unlike most other types of insurance, title insurance only requires you to pay a one-time premium, when the policy is issued. There are no ongoing annual premiums so after you sell your property you have no additional title insurance payments.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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