What Is an Owner’s Title Insurance Policy?

An owner’s title insurance policy protects those purchasing real estate. It addresses financial losses from defects in a property’s title that existed before the current owner acquired it. This insurance safeguards a homeowner’s investment against unforeseen claims or issues that could challenge their legal ownership.

Owner’s Title Insurance Explained

Owner’s title insurance protects the property owner against financial losses from title defects that occurred prior to the date of purchase. Unlike other insurance types, title insurance addresses historical issues. Its purpose is to ensure the buyer receives a clear and marketable title, free from unexpected claims or encumbrances. This policy protects the equity a homeowner builds in their property.

Even thorough public record searches cannot uncover all potential title issues. Hidden defects can remain undetected for years after a property changes hands. Without an owner’s policy, resolving such issues could lead to significant legal expenses or even property loss. The policy provides financial reimbursement and covers legal costs if a covered title problem arises.

Protections Offered by Owner’s Policy

An owner’s title insurance policy protects against various title defects and risks that could impair ownership. These policies cover issues that existed before the property’s purchase date. Such defects can include errors or omissions in public records, such as incorrect legal descriptions or misfiled documents. The policy also protects against financial loss from unknown liens, like unpaid taxes, judgments, or mechanic’s liens.

Protection extends to hidden risks like forgery or fraud in previous transactions. A forged signature on a deed could invalidate a prior transfer of ownership. The policy also covers claims from undisclosed or missing heirs who might emerge with a legal claim to the property. It can also defend against boundary or survey disputes where a neighbor contests property lines.

Other covered issues include unreleased mortgages or deeds executed by individuals who lacked the legal capacity to transfer property. If a valid claim is filed due to these pre-existing defects, the title insurance company will cover the financial loss up to the policy amount, including legal expenses incurred in defending the owner’s title.

Owner’s Policy Versus Lender’s Policy and Acquisition

In a real estate transaction, two main types of title insurance policies exist: an owner’s policy and a lender’s policy. An owner’s policy safeguards the property buyer’s equity and ownership rights for as long as they or their heirs own the property. Conversely, a lender’s policy protects the financial institution that provides the mortgage loan. This policy secures the lender’s investment against title defects, covering the loan amount and decreasing as the mortgage is paid down.

Lender’s title insurance is almost always a mandatory requirement when financing a home purchase, as it protects the lender’s interest. However, the lender’s policy does not protect the homeowner. An owner’s policy, while optional, is recommended because it exclusively protects the buyer’s financial stake. Purchasing both policies simultaneously often results in a discounted premium for the owner’s policy.

An owner’s title insurance policy is acquired during the closing process of a real estate transaction. The premium is a one-time fee paid at closing, unlike other insurance types that require recurring payments. The cost generally ranges from 0.5 percent to 1 percent of the property’s purchase price, often falling between $1,000 and $4,000. A title company conducts a thorough title search, examining public records to identify any existing liens or defects before the policy is issued, ensuring the property’s title is as clear as possible.