Errors in property ownership records are more common than you think. If you are in the process of purchasing a home, your lender may have spoken to you about owner’s title insurance. This type of insurance covers potential damages in the event that a third party contests your ownership of a property. While most lenders require buyers to purchase title insurance to protect the amount that they lend, having a policy in place can also be advantageous to buyers who want to safeguard their investment. There are a number of situations in which owner’s title insurance could come in handy.
Why You Need Owner’s Title Insurance
Owner’s title insurance is designed to protect homebuyers from financial loss related to property ownership issues. At the closing of a home, there are two main policies that should be acquired. The first is a lender’s policy which protects the lender against problems with the title of your property. The second is a title insurance policy. While the latter is optional, it can help prevent major financial setbacks if someone decides to sue and they have a claim against the home from before the homeowner purchased it.
When you are in the process of buying a home, the property’s ownership history is thoroughly analyzed by a title research company to ensure that the home has a clear title. Having a clear title means that the seller has complete ownership of the property and there are no legal claims to the home from creditors, the government, or third parties. You may be wondering why you should even purchase title insurance if your home is found to have a clean title. It is because there could be an error in the ownership records or the title research company could overlook an important detail.
Owner’s title insurance differs from other types of insurance, such as homeowner’s insurance or an auto policy. While these types of insurance policies are designed to cover future incidents, owner’s title insurance is limited to risks that already exist at the time that the policy was issued. That means that once the home is placed in your name, the former homeowner is no longer responsible for problems that affect the title. There is a wide range of incidents that could happen if you fail to protect yourself. For example, a deed could be improperly recorded using the wrong legal description, or a person going through bankruptcy who has no authority to sign a deed conveyed the property to a third party.
Owner’s Title Insurance Coverage Options
If you take out a loan from a public mortgage lender, you will likely be required to purchase a lender’s policy which covers the lender up to the amount of the loan. A lender’s policy typically remains in effect until the loan is paid off, you refinance, or you sell the home. An owner’s title insurance policy is issued for the amount that you paid for the home. It can cover a range of issues that could potentially arise, such as deed errors, tax liens, forgery of documents, mistakes in public record, or fraud.
Some insurance lenders offer title insurance policies that provide homeowners with extended coverage options. With extended coverage, buyers can remain protected from issues such as zoning law violations, building permit violations, inaccurate surveys, and certain types of structural damage. If you are sued for any reason relating to a title problem, your policy would typically cover any legal costs or damages that arise from the lawsuit. These losses could include the down payment of your home, principal payments, and the cost of home improvement tasks that you have already completed.
Owner’s title insurance also covers the cost of resolving various types of title problems or defects that may be uncovered during a title search. These may include tax liens from unpaid taxes, creditor liens from a preexisting mortgage, construction liens from unpaid construction or renovation bills, or court judgements from a post-divorce judgement or similar situation. However, know that if there are title problems found that cannot be resolved in a timely manner, the lender may refuse to issue a mortgage on the home and the buyer may be forced to walk away from the sale.
Learn More About Owner’s Title Insurance
Not having owner’s title insurance puts homebuyers at significant risk in the event that a title defect is found. Having an owner’s title insurance policy not only provides financial protection against title problems, but can also provide you with peace of mind before and after the sale. Know that as a buyer, you have the right to choose the company for both your lender’s and owner’s title insurance policies. For more information regarding owner’s title insurance or to acquire a policy, contact the professionals at Mathis Title Company.