At Guardian Title and Trust, Inc., we’re often asked about the risks of not having an owner’s title insurance policy. While most lenders require a lender’s policy as a condition of issuing a mortgage, many home buyers choose to go without an owner’s policy to protect their investment. There are three main reasons for this: 1) the owner’s policy is optional; 2) many home buyers don’t know such a policy exists; 3) people don’t think they need it.
To help you understand why buying an owner’s title policy is so important, below I’ve gathered the four most common risks property owners without such a policy face on a daily basis.
1. The Risk of “Buying” Problems
Filing errors that disrupt the chain of ownership can lead to discrepancies, with severe consequences like back taxes filed incorrectly and heirs not added to ownership chains. Since errors affecting homeownership can be complex, therefore quite costly to resolve, getting an owner’s policy is very important. Besides providing coverage against future claims, which may arise from clerical errors and omissions that existed before the policy’s effective date, owner’s title insurance involves a thorough title examination that may disclose a series of problems. When errors or problems are found, they must be resolved and all the documents recorded correctly before the real estate transaction can be executed.
2. The Risk of Inheriting Existing Debt
If the seller deliberately hides a lien or doesn’t know there’s a lien filed against the property, you may end up having to pay outstanding debt. Several types of liens, such as unpaid state and federal taxes, mortgages, community association fees, work performed by contractors, divorce decrees and child support, will function as clouds on the title. If they aren’t solved and removed before you buy the property, you may need to pay previous owner’s dues in order to get a clear title to the property.
Conversely, if an owner’s policy has been issued to you, the title insurance company will take care of covered title-related problems that may become known after the closing, up to the coverage limit. If you decide to pay the debt to get a clear title right away (e.g. in case you want to sell the home and an offer has been made), make sure the clerk gives you a Release of Lien form. Then, file the form with the County Recorder’s Office.
3. The Risk of Paying Large Amounts of Money to Protect Your Ownership Rights
Imagine this: you buy a house and a few months later, the sister of the seller comes forward, claiming an ownership interest in the property. If you cannot solve the problem yourself and don’t have owner’s title insurance, the only thing left for you to do is hire a lawyer to represent you in court. Assuming that the sister has a right in the house you bought, you’ll most likely need to purchase her share in the home and cover all the costs in connection with the lawsuit.
If you have an owner’s policy, the title insurance company has a duty to defend you in court, if needed, and cover the legal fees along with the monetary compensation awarded by court to the sister. Therefore, you’ll not only be able to keep the house but also have the title cloud removed without paying a dime (except for the initial one-time title insurance premium). The same applies to cases involving missing heirs who come forward to claim their inheritance share.
4. The Risk of Losing the House
Just the other day, a fraud story caught my attention. A fraudulent real estate agency used false identification to forge and record deeds on several properties. Then, they sold the properties while the real owners were out of town. A few weeks later, the owners found out what had happened and started legal action to get their homes back. Not only did the new owners not have title insurance and couldn’t cover the legal fees, they were also evicted. On the other hand, the homeowners with adequate title insurance were compensated for their loss.
In conclusion, title insurance is like any other type of insurance: no one wants to pay for it, but it can be a real life-saver when people run into trouble. Since the level of coverage varies greatly between standard and extended policies, be sure to ask the title insurance company what exactly your policy will cover. Once you get the documents, you can review the risks covered, which are listed under the coverage statement.
At Guardian Title and Trust, Inc., we’re aware that fulfilling your homeownership dream involves a serious, long-term financial commitment. As an ALTA-certified title insurance provider, we can offer you the coverage you need to protect both your investment and dream. To learn more about our products and services, or to find out how we can become the “one-stop” shop for all of your title search, title insurance and settlement needs, give us a call today at (904)992-1162.