What Is an Owner’s Policy in Real Estate?

An owner’s policy in real estate protects homeowners from financial losses due to specific defects or challenges to their property’s title. This form of title insurance safeguards the owner’s investment by addressing issues that existed with the property’s ownership history before the current purchase. It helps ensure clear ownership, mitigating risks from past claims or errors.

What an Owner’s Policy Is

An owner’s title insurance policy shields a homeowner from financial losses due to certain defects in the property’s title. Unlike homeowner’s insurance, which covers physical damage, an owner’s policy focuses exclusively on the legal ownership and history of the title. It addresses issues that arose prior to the current owner’s acquisition, ensuring the property’s title is free from undisclosed encumbrances.

An owner’s policy offers security against unforeseen title problems. Without this protection, a homeowner could face significant legal expenses or even property loss if a valid claim against the title emerges. The policy covers costs associated with defending the title in court or compensating for a covered loss, protecting the homeowner’s investment.

The premium for an owner’s title insurance policy is typically a one-time payment, made at the time of the real estate closing. This single payment provides coverage for as long as the homeowner or their heirs retain an interest in the property. The cost can vary widely, often ranging from a few hundred dollars to over a thousand dollars, depending on the property’s value and the specific title company. This one-time fee contrasts with recurring premiums for other types of insurance.

Common Issues an Owner’s Policy Covers

An owner’s policy protects against specific title defects that could jeopardize ownership rights. It covers forged documents, such as deeds or mortgages, which might appear valid but were fraudulently created. This protects against claims from deceptive practices, ensuring the homeowner is not responsible for unauthorized transactions. The policy also addresses errors or omissions in public records, like incorrect indexing or misfiled documents, which can cloud a property’s title.

The policy protects against claims from undisclosed heirs or previous owners who might emerge after a sale to assert a right to the property. This can occur if a prior owner’s will was not properly probated or a relative’s claim was overlooked during the title search. Unsatisfied mortgages or liens, such as mechanic’s liens or tax liens, not discovered and cleared before closing are also covered. These unexpected financial burdens could otherwise become the new owner’s responsibility.

Protection extends to issues from improperly executed documents, where a previous deed or mortgage might have incorrect signatures or was signed under an expired power of attorney. Such errors can invalidate past ownership transfers, challenging the current title. Boundary disputes or encroachments not revealed by a survey are also covered. If a neighbor claims a portion of the property or a structure extends onto an adjacent parcel, the owner’s policy can help resolve such disputes.

Owner’s Policy Versus Lender’s Policy

The distinction between an owner’s policy and a lender’s policy is important in real estate transactions, as each serves a different purpose and protects different parties. An owner’s policy protects the financial interest of the buyer, the homeowner, in their property. It safeguards the homeowner’s equity against covered title defects that existed before the purchase.

In contrast, a lender’s policy is specifically designed to protect the financial interest of the mortgage lender. When a property is purchased with financing, the lender requires assurance that their loan is secured by a valid and enforceable lien against the property. This policy protects the lender’s investment up to the amount of the loan, shielding them from losses if a title defect impairs their lien. It is a mandatory requirement for nearly all financed real estate transactions.

While an owner’s policy is typically optional for the buyer, a lender’s policy is almost universally required by financial institutions providing a mortgage. The lender’s policy protects the bank’s security interest in the property, allowing them to recover their investment if the borrower defaults and a title issue arises. A lender’s policy does not extend any protection to the homeowner’s equity. Each policy addresses distinct financial interests, with the homeowner’s investment covered only by an owner’s policy.

Obtaining an Owner’s Policy

Obtaining an owner’s title insurance policy is a standard part of the real estate closing process and is typically arranged through the title company or closing agent. These professionals conduct a thorough examination of public records related to the property’s ownership history. This title search aims to identify any existing liens, encumbrances, or other defects that could affect the validity of the title. The findings of this search inform the underwriting of the policy.

The premium for an owner’s policy is generally paid at the closing table, alongside other settlement costs. The responsibility for payment can vary significantly depending on local customs and negotiation between the buyer and seller. In some regions, the seller typically pays, while in others, the buyer covers the cost, or it might be a negotiated split. No recurring premiums are required after the initial transaction.

Before the policy is issued, the title company performs a comprehensive title search to uncover potential issues. This investigative step helps identify and often resolve title defects before the sale is finalized. If a defect is found, the title company works to clear it, ensuring a clear title can be conveyed to the buyer. This proactive approach minimizes the likelihood of future claims against the title.