Owner’s title insurance policy
An owner’s title insurance policy
protects a homeowner against financial losses due to defects in a property’s title, such as liens, forgery, or undisclosed heirs. Unlike other types of insurance that cover future events, this policy protects against issues that occurred in the past, before you owned the property.
How an owner’s policy works
- Title search: Before issuing the policy, a title company researches public records to find any potential problems with the title, like old liens or errors in deeds.
- Coverage issuance: If issues are found, they are typically resolved before the property closing. The policy is then issued for a one-time premium paid at closing.
- Long-term protection: The policy remains in effect as long as you or your heirs own the property. If a covered title problem arises later, the insurer pays the legal fees to defend your ownership rights and covers any financial losses up to the policy amount.
What an owner’s policy covers
A basic owner’s policy protects against a number of historical defects that can put your ownership at risk. Common examples include:
- Errors in public records: Mistakes in the recording of legal documents.
- Forgery and fraud: Claims that a past deed was forged or that a fraudulent transfer of ownership occurred.
- Undisclosed heirs: A person who was not known at the time of the sale comes forward to claim an interest in the property.
- Liens: Outstanding claims against the property, such as back taxes or unpaid debts from previous owners.
- Improperly executed documents: A deed or other document that was not signed correctly.
Owner’s vs. lender’s title insurance
It is important to distinguish an owner’s policy from a lender’s policy, which is typically required by mortgage lenders.
| Owner’s Title Insurance | Lender’s Title Insurance | |
|---|---|---|
| Who it protects | The homebuyer | The mortgage lender |
| Duration | For as long as the homeowner owns the property | Only for the life of the mortgage loan |
| When to get it | Optional, but highly recommended | Usually required by the lender for a mortgage |
Is it necessary?
While an owner’s policy is not legally required for a home purchase, it is a crucial safeguard for your investment. Without it, you are personally responsible for paying all legal costs and financial losses related to any title defects that may be discovered after you close on the property.