Once you agree to purchase a home, you will enter into a process of legal relevance, most of which will be taken care of by your legal representative. Ideally a legal representative will be expected to make as fit an inquiry as is needed to establish a clear and good title for his client.

However, on occasion a previous interest may afterward be discovered to impose itself onto the subject property, and quite possibly do so to an extent that the character of the transaction has materially been altered. In some instances the purchase price or part thereof that has been provided may not be recoverable and a remedy may not exist for the purchaser suffering in this predicament. The benefits of title insurance will soon become apparent.

The Torrens Title System of Registration

In some jurisdictions such as Iowa, the Torrens Title system of title registration has been adopted which is a system devised by Sir Robert Torrens, in South Australia in 1858.

This system provides for an indefeasibility of title upon registration and purports to enshrine the act of registration with the ultimate veto of validation in regard to a person’s title in property.

Certainly this system has areas for improvement, however the indefeasibility of title is supported by strict legislation and a statutory indemnity fund which provides much of the insurance necessary to cover against loss of title interests and enforce its precepts.

While most of the United States title registration systems exist under an old system registration of separate deeds to transfer property, it can in no way counter the risks or provide the indefeasibility that a Torrens system of title registration is able to offer interest holders in property.

The reason why title insurance is needed is found in the most elementary of uncertainties. For example, where a purchaser is transferred a title that was not even able to be transferred by the vendor, due to his having no interest in the property whatsoever, there has existed no right to alienate the interest at any material time. When two or more interests are inconsistent with each other, priorities are allocated according to the date created and the maxim ‘nemo dat quod non habet’ is applied, meaning ‘a person cannot convey an interest he does not have.

This example of course may be due to a number of plausible explanations but serves to illustrate that fraud in particular, may well result in protracted legal proceedings which at worst may find the purchaser for good value acquiring not title in the property they wished to purchase, but a chose in action and a right to sue a defendant that may not prove to be solvent. At least if title insurance has been taken out, the insurer will finance the cost of proceedings under the terms of the policy, and any return available from the defendant will be a return attributed to the defrauded purchaser.

The above scenario is precisely why you need title insurance and is by no means a limitation on the types of interests that can encumber what the purchaser has been led to believe is clear and good title to property. Essentially the purpose of title insurance is to remove the risk of these types of calamities, and impose them upon those who have the expertise and the inclination to ascertain the title to a particular property and evaluate the risk of incurring threats to that title by other interests that have remained undetected or unforeseen.

Without title insurance the uninformed and ill equipped purchaser is unable to ensure the integrity of their property.

Resources:

Overview_of_the_Torrens_Title_System.asp

http://en.wikipedia.org/wiki/Title_insurance

http://homebuying.about.com/od/homeshopping/qt/TitleInsurance.htm