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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Owner's Title Insurance
In the journey of home buying, many times people are only saving up for their down payment and are not aware of many things that they will have to purchase.
An owner’s title insurance is one of the most important purchases that a purchaser must make.
Let us understand what is owner's title insurance
While buying a house, a buyer needs to take care that they are not facing risks. The old homeowner’s paperwork may not have been correct, or there could have been some fraudulent activity related to the property.
With an owner’s title insurance, the homeowners are protected against any problems related to their deed or property ownership that might come up after they buy a house.
The various potential issues are:
- A deed filed incorrectly: The mistakes that could happen while making the deed, like it is not recorded in the buyer’s legal name, ownership of the property could be unclear.
- Information on the deed could be false: like a forged signature or details about the property are altered.
- Mortgage frauds: The past owner had actually not been paying the mortgage but could have made it look like a mortgage was paid leading the past lender to foreclose.
- Liens: The statements of debt filed against the property are liens. These liens could be from a homeowners association to whom a fine wasn’t paid, a contractor who had completed some work but wasn’t paid, or from the government because the property taxes weren’t paid.
- Encroachments: A owner’s title insurance protect the homeowner if a neighbor builds a fence or outbuilding on land because the property line isn’t clear, this impacts the property rights and protects the owner against an existing improvement that encroaches on their property.
- Easements: Someone else, like a utility company, may have rights to a part of the owner’s property, but that’s not discovered during the buying process and it gets cleared with the title insurance.
In all these cases, it is possible for a third party to try and lay claim on the property. With title insurance the risk to a buyer who wasn’t aware of an existing problem reduces.
Even if a title search is completed before the purchase of the property, an issue may pop up any time and it may not show until after ownership of the property.
The difference between lender's title insurance v/s owner's title insurance
The lender may make the borrower purchase a lender’s title insurance policy when getting a mortgage.
If the ownership of the property is contested this title insurance will protect the amount they lent out.
A lender’s title insurance policy pays the lender the outstanding amount they’re owed when someone else claims ownership of the property, and if it’s legally upheld.
But a lender’s title insurance doesn’t protect the owner or their investment. If a claim to ownership comes up, the new owner will have to pay for legal proceedings.
The owner could also lose the money they have spent on their down payment and subsequent mortgage payments. Hence a separate owner’s title insurance policy is a wise purchase.
As long as the owner has the home the more valuable the Owner’s title insurance becomes.
As the owner continues to pay their mortgage, they own a greater percentage of their property and have more to lose.
A title claim can come up at any time, even after decades of being in the house. One should have an owner’s title insurance policy if they plan to stay in their home for many years.
Many times owner’s title insurance is often confused with the lender’s title insurance.
A lender’s title insurance is usually required for the purpose of getting a mortgage loan.
So if a question is asked as to, is owner’s title insurance is required, then the answer is no, there’s no law requiring the owner to purchase any additional policy to cover their potential losses.
Who is responsible for a title insurance policy?
In many cases, the new buyer could be in charge of covering the cost of the owner’s title insurance policy.
While in some states of America, it is the seller who is responsible for purchasing a title insurance policy for the new owner.
In a few other states, the purchase price of the policy is negotiated and divided among the buyer and seller. A real estate agent is the right person who can tell you how it works in your state.
What all does the owner's title insurance cover?
An owner’s title insurance policy is a one-time cost for protection against any financial loss related to a problem with the title.
If the new owner is sued by anyone claiming that their deed is fraudulent and the property belongs to them, the policy covers all the legal fees and court costs. If the state claims for past unpaid property taxes, the policy covers those too.
Though these are issues that one would have no way of knowing about and are not responsible for causing, yet it could cost a lot of money to fix them.
Pros And Cons of owner's title insurance
Pros of owner's title insurance:
- Peace of mind: The homeowner doesn’t need to worry about having to pay out of pocket for a problem related to the legal ownership of their property.
- Compared to the risk involved the cost is small: The price for an owner’s title insurance policy is relatively a small percentage of the home’s purchase, but the possible risk it covers is huge with the legal costs and the complete loss of the home.
- A brand new home without any stress: Usually legal disputes can arise on ownership of the land where a subdivision or condominium structure is constructed. The mechanic’s liens from a contractor may also be connected to the property in case of old unpaid work.
- If it is a very old home: With more past owners the opportunities for problems are higher. The possibility past easements or surveys that one is not aware of could put them in trouble with an owner’s title insurance getting sorted out.
- The satisfaction that a thorough title search is done: The title companies are putting their money on the line, so they will be extra alert and make sure the title is clean.
Cons of owner's title insurance:
- Cost: The owner could pay a large amount of money on the low chance of using the policy, so it may look like a wastage of money.
- Do not plan to own the property for long: If the owner is flipping or living temporarily in a home they have bought, it may not be worth buying title insurance. They can check for a binder’s policy for short-term which covers 1 to 3 years.
Other things to know about the owner's title insurance
A title insurance policy can cover legal expenses and liens, along with the loss of homeowners’ down payment or monthly mortgage payments.
Even if they have only put little or no money down, they may need a lawyer to help them get a forgery on the deed taken care of.
There is no way of knowing that information on the deed was fraudulent, so to get it sorted out they have to pay legal fees for help.
The owner might consider a title insurance policy if they don’t anticipate having the funds to easily pay legal expenses.
Many times when someone is buying a home from their parents, who got it from their parents, they may think there are no hidden surprises. But many a time old easements and other issues can come up from decades ago.
Conclusion
Title insurance is a type of insurance protecting homeowners against claims on the title to the property.
If after the purchase there are disputes over title ownership, the insurance policy pays for all the legal fees to resolve them.
Title insurance is very different from other types of insurance that help cover future mishaps, it protects the policyholder from any past title discrepancies from the previous owner that might be uncovered during or after the purchase of the property.
Seek help from a lending advisor to answer all the questions about buying a home and guide you to decide about title insurance, and the costs you’ll pay to your lender.
Its great that you mentioned how homeowners doesn’t need to worry about paying due to a problem about the legal ownership of a property. We just finished building our new house and my friend just suggested to me that I should take a title insurance for it. I am not exactly that knowledgeable about it so I’ll look for title insurance agent services and ask for their help with this matter.