Should You Get Owners Title Insurance?

Understanding Owner’s Title Insurance

When purchasing a home, title insurance is a form of protection that addresses risks related to the legal ownership, or “title,” of a property. Unlike other insurance policies that cover future events, title insurance protects against past issues or defects in a property’s ownership history that could surface after the purchase.

Owner’s title insurance safeguards the homebuyer’s financial investment and equity. It protects you from potential financial losses and legal expenses arising from issues with the property’s title that existed before you acquired ownership. It remains in effect for as long as you or your heirs hold an interest in the property.

This differs from lender’s title insurance, which is typically required by mortgage lenders. A lender’s policy protects the financial institution’s interest in the property, ensuring their loan is secure against title defects. The lender’s coverage amount typically equals the mortgage loan and decreases as the loan is paid down, expiring once the loan is satisfied.

While both policies address title issues, the lender’s policy offers no protection to the homeowner’s equity or investment. If a title problem arises, the lender’s policy would cover the lender’s loss, but you, as the homeowner, would be responsible for your own legal costs and any financial losses to your equity if you do not have an owner’s policy. An owner’s title insurance policy acts as a separate safeguard for your ownership rights and financial stake in the home.

Protections Offered by Owner’s Title Insurance

Owner’s title insurance provides protection against title defects that could jeopardize your property ownership or lead to financial burdens. Even with a thorough title search conducted before closing, hidden issues can exist that are not immediately apparent from public records. These hidden defects are what an owner’s policy is designed to cover, mitigating risks that could result in significant financial loss or legal complications.

One common issue covered is errors in public records, which can include clerical mistakes, incorrect property descriptions, or misfiled documents. Such inaccuracies could lead to disputes over property boundaries or even challenge your legal claim to the property. The policy also protects against fraudulent activities like forged signatures on deeds or other legal documents.

Another protection involves undisclosed or unknown liens, such as unpaid taxes, contractor bills, or previous mortgages that were not properly released. These liens can remain attached to the property even after it changes hands, potentially making you responsible for the prior owner’s debts. An owner’s policy would cover the costs of removing these liens or provide legal defense against claims.

The insurance guards against claims from undisclosed or missing heirs of previous owners. It also addresses issues stemming from improperly executed deeds, such as those signed by an individual without legal capacity. Boundary disputes with neighbors, arising from conflicting surveys or unclear property lines, are also covered.

Acquiring Owner’s Title Insurance

Obtaining owner’s title insurance is a straightforward process, facilitated during the home closing. The policy is purchased with a one-time premium paid at closing, providing coverage for as long as you own the property. This single payment contrasts with other forms of insurance that require recurring premiums.

The cost of an owner’s title insurance policy varies depending on several factors, including the purchase price of the home and the state where the property is located. The premium can range from 0.5% to 1% of the home’s purchase price, often falling between $1,000 and $4,000. Some states regulate title insurance costs, meaning rates might be fixed across all providers, while in others, you can shop around for the best price.

The process involves a title company or an attorney, who conducts a title search to identify any existing defects or encumbrances before the policy is issued. The Real Estate Settlement Procedures Act (RESPA) ensures you can choose your title insurance provider. Your real estate agent, lender, or attorney may offer recommendations. It can be more cost-effective to purchase both the owner’s and lender’s policies from the same provider if you are obtaining a mortgage.

In addition to the standard coverage, various endorsements can be added to an owner’s title insurance policy. These endorsements expand the policy’s coverage to address particular risks related to the property. Examples include coverage for encroachments, survey issues, or environmental protection liens.