The Importance of Owner's Title Insurance

Owner’s title insurance is optional insurance offered to Buyers at closing. An Owners Title Insurance Policy protects the buyer against the many defects in title that a proper title examination by a title attorney may not reveal. Owner’s coverage includes protection against:

• Materialmens Liens
• Matters filed during the “Gap Period”
• Failure of title due to forgery in the chain of title,
• Encroachments of Fences and other structures
• Failure of title due to improper probate of wills in the chain of title
• Challenge of Foreclosure in the chain of title
• Failure of title due to invalid divorce in chain of title
• Failure of title due to unknown heirs

Owner’s title insurance is a one-time premium. The premium is lower if the borrower makes the purchase at the same time the lender’s policy is purchased (at closing). In the event of a claim, the policy pays the cost of attorney fees to defend the claim and if the claim is upheld, the title company will pay the cost of the claim.

Most sophisticated borrowers purchase title insurance. However some borrowers do not and the decision is sometimes based upon misinformation, including:

• The lender’s policy will take care of any claims. FALSE! The lender’s coverage is available only to the lender in the event you default, they foreclose and then there is a problem with the title. It provides no coverage to the Purchaser.
• This is a new house and therefore I do not need to worry about what happened before the house was built. FALSE! Claims attach to the land which in most instances will have passed through many hands prior to the time the new house is built. In addition, many Title problems originate with new construction. For example, mechanics liens can be filed; the house is not built on the correct lot or is not built within the building lines.
• The law firm searched the records; therefore if there are title deficiencies the law firm’s malpractice policy will cover the claim. FALSE! A proper title examine cannot reveal title claims described above.
• The borrower has little equity in the house; therefore does not need to purchase title insurance. FALSE! If there is a valid title claim, the borrowers will not only loose their equity, but will still be obligated to repay the lender the loan amount.

All lenders require title insurance and all owners of commercial property purchase owner’s title insurance. A residential borrower is wise to purchase this coverage at the time of closing.