Among the numerous line-items that fill up the closing statement when a buyer purchases a home, there will be a cost listed for title insurance. Since this cost will be required by the lender, most purchasers never give it a second thought – except for the fleeting thought that they have title insurance which will most certainly cover any issues concerning title to the property. Typically, it is not until much later, when a problem arises, that the purchaser thinks again about that purchased policy. By then, it can be too late.
The first mistake people make is thinking they have title insurance coverage because they paid for it at closing. In fact, it is more likely that the policy purchased at closing was a lender’s policy, not an owner’s policy. There is no law that requires a purchaser to buy an owner’s title insurance policy upon purchasing real estate. The lender’s policy is required if the purchaser obtains a mortgage. That policy protects the lender, but does not protect the purchaser/owner. A separate owner’s policy (with an additional cost) is required if protection for the owner is desired. The costs for an owner’s policy is a relatively small cost compared to the cost of purchasing a house.
An owner’s policy protects you, the owner, against title defects created by previous owners of your property. An owner’s policy can offer protection against title problems that come up during the time you own the property. Equally importantly, an owner’s policy will provide a defense, including an attorney and coverage for legal fees, against affirmative claims by others concerning the title to the property.
Title insurance can protect against title issues such as boundary line disputes and easement disputes, but it can also protect against a poorly recorded mortgage on the neighboring parcel that does not include the driveway to your property. Other title defects that can come up include old mortgages that were never paid, lost heirs that may have a claim to the property, divorces where conveyance of the property was mishandled, or unpaid contractors who file a lien against the property.
An owner has the option to purchase a standard Owner’s Policy or an enhanced policy. The enhanced policy incorporates those protections of the standard policy together with limited protection for defects that occur after you purchase the property. As with any insurance policy, it is important to examine and consider the exclusions and deductibles of the policy. For example, most title insurance policies will not provide protection for title defects that are unrecorded, such as a claim of adverse possession.
Unlike most insurance products there is no monthly or annual premium for title insurance. The policy coverage offers protection as long as you have an ownership interest in the property. In most cases, purchasing an owner’s title insurance policy provides additional protection for a reasonable, one-time cost.