When you buy a home or piece of property it is legally required that the history of the property be searched prior to closing for any any exisiting rights or claims that may threaten your title and possession of the property.
Although this search can also be performed by an attorney who then gives a title opinion, it is most often made by a title insurance company because lenders require that a title insurance lender’s policy be purchased for them as part of their mortgage lending requirements. An attorney’s opinion provides no guarantee, but a lender’s policy insures the lender’s interest in case someone claims title to your property after closing. This policy protects the lender’s interest in the property but it does not protect you.
You have the option of also purchasing an owner’s policy for your own protection. Because the title search has already been done for the lender’s policy when you have a mortgage, the additional cost for an owner’s policy is considerably less.
Unlike other forms of insurance, you pay only one premium at closing that protects you and your heirs for as long as you own the property. There are no annual payments to keep your policy in force.
What does it protect against?
Title insurance is issued after a careful examination of public records, but even the most thorough search cannot be absolutely sure that no title hazards are present. Here are a few of the most common hidden risks that your insurance covers…
- False impersonation of the true owner of the property
- Forged deed, releases or wills, use of invalid or expired power of attorney
- Undisclosed or missing heirs, mistakes in recording legal documents
- Misinterpretations of wills, deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Fraud
- Liens for unpaid estate, inheritance, income or gift taxes
What will it do for me?
- Pay legal fees for defending against any claims on the property
- Assume responsibility for and bear the cost of settling any claims if necessary
My experience with no owner’s policy
Here is an example where an owner’s policy would have been a good thing to have…
When the title search was done on a property in preparation for the sale they found an existing mortgage lien on the property. The seller had paid the mortgage in full but the satisfaction had never been recorded and she didn’t have the documents proving it. Closing couldn’t take place without it.
If she would have had an owner’s policy the title insurance company would have assumed responsibility and we would have simply proceeded to closing.
As she didn’t have insurance, she had to take care of it herself before we could close. In this case she was fortunate she was able to clear it without hiring an attorney. The mortgage company was able to provide a record of the satisfaction but it took several weeks to get the needed documentation and closing was delayed, causing housing problems for the buyer who needed to vacate her apartment. Another instance of an unrecorded mortgage payoff wasn’t quite as easy because the mortgage company was no longer in existence!
Title insurance protects what is possibly the most important investment you will ever make. As with any insurance, you will hopefully never need to use it. Personally, I would never buy a home without it.
