Owner’s Title Insurance: What Everyone Needs to Know

Owner's Title Insurance: What Everyone Needs to Know

Are you currently shopping for a home? Here’s something every aspiring homeowner needs to know—purchasing an owner’s title insurance policy is something you shouldn’t overlook. But why is owner’s title insurance so important?

Let’s dive deep into the topic, covering everything from types of title insurance to the specifics of legal ownership and so much more. Make sure that you carefully read this guide before you start to shop around for title insurance!

Why You Need an Owner’s Title Insurance Policy

When you look at your new home’s closing costs, you’ll see that you will have to pay for your lender’s title insurance if you are financing your home because lenders require it. That’s because your lender knows how important it is to protect against title issues—but don’t get tempted to think that one title insurance fee is enough.

The insurance for your mortgage lender only protects the lender. Without your policy, you’re still at risk. If you’re looking for additional information, the Consumer Financial Protection Bureau has resources to help.

What is a Title?

A title is a document that identifies the person who owns a piece of property. It is the legal document that proves that you own your new home. But, you need to be sure that you have a clear title, meaning that no one else can claim ownership of the property. That’s why you hire a title company as part of the closing process. The title company searches public records to ensure there are no outstanding claims.

Once that title search is complete, the title company can provide you and your lender with title insurance policies. Those policies protect you if the title company doesn’t find an existing claim or someone makes a claim after you own the property.

How Can Someone Have a Claim to the Home I’m Buying?

It doesn’t happen often, but it is never good when there is a problem with your title. Here are some ways title disputes occur.

  • The previous owner did work on the house, and their contractor never paid the subcontractors. The subcontractors could put a mechanics’ lien on the house to get their money. If you have closed on the home, you may be responsible for paying the subcontractors.
  • If there are errors in public records, it could affect your ownership and cost you time and money to resolve.
  • If you don’t know about an easement, it could let a government agency or other individuals access your property. It may not be a problem for you, but if someone with an easement wants to build a road on your land, it could cause heartache.
  • The person who owned the home previously may have died, but no one could find a will. It could happen that long after your closing, family members discover the will, and those heirs may dispute your ownership.
  • You may have heard about unscrupulous individuals who find a home where the owners will be away for an extended period. They then pose as a real estate agent and sell the house with fraudulent documentation. When the real homeowners appear, you, as the buyer, would have a horrible problem.

To avoid situations like these, a title insurance company does extensive searches of public records to ensure a clear title before you close on the house—but don’t forget that things do go wrong sometimes.

What Does Owner’s Title Insurance Cover?

You must read your title policy to find out precisely what your specific policy for insurance covers. Local regulations may limit coverage in some areas, and the insurer may have limitations or exclusions. Look for whether your insurer has different levels of policies. You may need to upgrade your policy to cover all the examples listed below. In general, a policy would cover title defects and title problems such as:

  • Forgery
  • A party to the transaction who didn’t have the competency, capacity, or legal authority to sell the house
  • Someone who sold the house without the required involvement of a spouse, co-owner, or business partner
  • A prior mortgage or lien recorded but not disclosed by the seller
  • An easement or restrictions on the use of the property recorded but not disclosed by the seller
  • Legal descriptions of the property that are wrong or not adequate to determine property lines
  • Deeds that did not get recorded legally
  • Your property has buildings on it located on someone else’s land.
  • An erroneous survey of your property lines
  • Liens not recorded, such as mechanics’ liens or estate tax liens
  • The removal of improvements to your home because the owner who made the improvements didn’t get building permits

Your policy will usually cover legal fees and expenses you’ll pay to investigate, prosecute, or settle a claim. Depending on your coverage, it may also cover other costs, such as moving a building on your property located on someone else’s land.

Is Title Insurance Worth the Cost?

When you buy home insurance, you assume that there’s only a minimal possibility that your house will burn down in a fire. But you have peace of mind knowing that the insurance is there if it does.

You can apply the same concept to owner’s title insurance. You may never need it, but you’ll sleep better knowing you have it. Here are the reasons why you need that policy.

  • It can help you spot problems before you close. American Land Title Association is one of the largest title companies in the U.S. They published a report stating that title companies find and resolve problems with a title in 25 percent of searches. Doing a title search before you close can save you from more significant issues later.
  • It protects your investment. You know that buying a home is the biggest thing many people purchase in their lifetime. You have home insurance to protect you against loss. It would be a terrible thing if you lost your home due to a title issue when you could have avoided it.
  • It reduces your risk when purchasing a home. Now that you know how many things could go wrong with your title, you can appreciate the fact that you need to protect yourself against those risks.
  • It will pay out more than you paid for it. The cost of a policy is a one-time fee that you pay as part of your closing costs. When you need it, your expenses will undoubtedly be much higher than what you paid for the policy.
  • It protects your heirs. The policy will cover you and your heirs for as long as any of you own the home.
  • It protects you if covered problems stop your sale of the home. What if no one discovers that your home addition didn’t have building permits until you sell? Your policy will protect you from any financial loss caused by losing a contract.
  • It protects you if you purchase a new construction home. When you buy a new construction home, you’re especially vulnerable. While there is no title history, you could still run into problems. There could be a problem stemming from when the developer purchased the land or mechanics liens if the builder didn’t pay contractors or subcontractors. There could also be unpaid property taxes or survey problems to establish property boundaries.

Getting Owner’s Title Insurance for Your Own Home

Owner’s title insurance is an indispensable safeguard for homebuyers that acts as a protective barrier against unforeseen legal and financial complications that can arise from title discrepancies.

While thorough, the process of a title search isn’t foolproof, leaving room for latent issues that could jeopardize your ownership and financial well-being. This form of insurance not only secures your largest investment—your home—but also covers potential future disputes, your heirs, and even the integrity of new constructions.

The value of this type of coverage is underscored by its longevity and the breadth of protection it offers, extending well beyond the initial purchase. Considering that a significant percentage of title searches reveal problems, the one-time cost of an owner’s title insurance policy is a modest price to ensure that your property rights remain intact.

As a critical component of responsible homeownership, owner’s title insurance delivers peace of mind, ensuring that your property remains yours, unencumbered by past claims or hidden legal obstacles.