OWNER’S TITLE INSURANCE: WHO NEEDS IT? YOU DO IF YOU OWN REAL PROPERTY

ByBethany L. Flanders in Insurance, Real Estate March 20th, 2014

  Most people have car insurance and health insurance.  Some people even have pet insurance!  If you own property, you most likely have homeowner’s insurance.  But how many people have title insurance and/or even know what it covers? If you own real property (real estate) or plan to purchase real property in the future, you will inevitably be asked if you want to get title insurance.  However, most purchasers have no idea what title insurance is or how it benefits them even though the purchase of a home or other type of real property is probably going to be the largest purchase in their life! When you purchase real property with a lender, they will require a Lender’s Title Policy to insure certain coverage for their loan for the transaction. You may think that the Lender’s Title Policy will cover you if a claim arises, but it doesn’t.  The Lender’s Title Policy insures ONLY the Lender and it insures only that the mortgage is a valid lien, only subject to certain priorities that the Lender has seen and agreed to. An Owner’s Title Policy is offered as an option at settlement.  It is a one-time payment which provides the Owner with certain coverage and protection regarding the Real Property. Title insurance is a way to protect yourself against possible problems regarding your rights to ownership of your property arising out of events that have happened during prior ownership of the property. It may also  help to cover the cost of defending any claims that may arise after settlement.  When you purchase a piece of real estate, you are not only purchasing the physical property itself, but also all of the prior owners’ and sellers’ rights and interests in the property, which may not be 100%.  Prior to settlement, the title company will try to determine the various rights and interest that are attached to that particular property.  There are three main types of rights and interests: 1.  Rights and interests that are recorded in public records, like deeds and mortgages. 2.  Rights and interests that are not recorded in public records but which exist by law through statutes, like mechanics liens, taxes and assessments. 3.  Rights and interests that are hidden, like unknown heirs of an estate and forgeries of critical documents in the title chain. Even the most diligent title examiner may not uncover all of the “hidden” defects in title, thereby leaving you exposed and at risk of financial loss or worse, losing your home or investment.  That is a scary thought! The most common title claims arise in the form of the third version: rights and interests which are hidden.  Consider the following scenarios:

  • You arrive at settlement to finalize the purchase of a home from Mr. & Mrs. Seller.  After settlement, the real Mrs. Seller claims that her name was forged; she never agreed to nor had knowledge of the transaction and therefore still owns the property.  If you don’t have title insurance and Mrs. Seller’s claims are true, you may actually own only Mr. Seller’s interest in the property.  If the entire transaction is found to be fraudulent, you may lose your entire ownership of the property.  If you had purchased title insurance, the title insurance company might negotiate with the real Mrs. Seller and reach a settlement so that you could remain in your new home.
  • Mr. Decedent owned a piece of real property and no Will can be found at the time of his death.  Mr. Personal Representative sells the piece of real property to you on behalf of Mr. Decedent’s heirs at law; his three children, A, B and C.  After settlement, a valid Will for Mr. Decedent is found stating that the real property has been specifically devised to Mr. Decedent’s good friend, Mr. Neighbor.  Mr. Neighbor now sues you, claiming that he is the true and rightful owner of the property.  If you had purchased title insurance, the cost of defending the claim made by Mr. Neighbor could be covered as well as any financial loss that you may incur.
  • You have now decided to build your dream home.  However, the builder didn’t pay the roofer and now the roofer wants his payment, so he files a lien against the property.  Without a title search alerting you to this lien, and an owner’s policy protecting you, you would become responsible for paying this debt— meaning you’d be paying the roofer instead of purchasing new living room furniture.  If you had purchased an Owner’s Title Policy, the insurance company likely would have relieved you from paying that bill.
  • After a months-long search, you finally find your family’s dream home—in a safe neighborhood with a great school district, and a big backyard for the swimming pool you plan to build.  You move in and hire a contractor to build the pool, but a few days into construction the contractor finds an underground utility line running right through the middle of your backyard.  You check your owner’s policy of title insurance, and find out that the title search did not discover this easement. Due to the fact that you had obtained an owner’s policy, your title insurance company may pay to have the underground utility relocated so you can build your swimming pool.

These are just a couple of instances where not purchasing title insurance may cost you in the long run.  Having an Owner’s Title Policy will provide protection against ownership challenges, errors or omissions in deeds, mistakes in examining records, missed liens, forgery and undisclosed heirs, among other things. What about the extra cost?  It’s not as much as you think!  Title insurance is only a one-time premium paid at settlement and is based on the purchase price of the property.  The protection of the title insurance continues for as long as you OR your heirs own the property. So the real question isn’t how much does title insurance cost; it is how much could it cost me if I don’t have title insurance?    

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