Buying A New House? Why You Need Owner’s Title Insurance

Before you can understand why you need title insurance, it’s important to understand what title insurance actually is. As part of your real estate closing, your closing attorney (who is often also a title agent) will review the chain of title to the property you are purchasing. The title search usually goes back about 40 years depending on the kind of transaction, and includes a search of all kinds of public records – not just deeds and mortgages on the property, but also foreclosure actions, judgments, probate cases, family court matters, tax liens, etc. This process verifies that the seller actually owns the property and that the seller is actually free to sell it.

But, because title searches are limited to a certain number of years (they don’t go back forever in time) and are limited to locating things that can be determined from public records – there is always a risk of hidden defects to a chain of title. Title insurance protects you from these hidden defects or risks that would not be known or disclosed with even the most thorough title search. Title insurance does not protect you from these title defects occurring – rather, it insures your equity in the property and minimizes or eliminates the risk of loss to you, the Owner resulting from title defects.

If you have an owner’s title insurance policy, the title company may:

• pay legal expenses to eliminate title defects,
• pay claims that may arise from errors in a title examination or recording,
• or pay losses from hidden defects or defects that were not shown in the records.

Some of the hidden risks that may not be revealed in a title search include:

• Fraud or forgery in the execution of closing documents
• Undue influence on a grantor or lack of mental capacity (incompetence)
• Incorrect legal descriptions
• Undisclosed or missing heirs that may have an interest in the property
• Legal access to the property
• Unrecorded easements on the property
• Rights to the property under leases, contracts or options that were not recorded

Other important facts to know about owner’s title insurance:

• There is a one time premium for title insurance (not an annual premium, like you pay for homeowner’s insurance, or car insurance) and it is not that expensive.
• You cannot purchase title insurance after
• An owner’s title insurance policy gives the owner this protection forever.
• The lender’s title insurance policy only insures the lender’s interest in your property – it does not protect you, the Owner.