January 15, 2020

Q & A Is Owners Title Insurance Really Needed

Question: “I’m getting ready to close on my new home, but there’s a settlement fee for the lender’s title insurance and also a similar one for the owner’s title insurance. Is it really necessary that I pay both?”

Answer: This question has been around for a long time and many homeowners get very frustrated when dealing with it. It may seem silly to purchase owner’s title insurance, particularly when they are positive that the person who lived in it previously has been there for a very long time and is an otherwise trustworthy individual.

The first thing that’s important to understand is that obtaining lender’s title insurance is a must if you’re looking to get a mortgage from a commercial lender. Luckily, many states often make it mandatory for the seller themself to cover this cost on their own. In addition to that, there are many builders who will agree to cover this cost for you if you agree to use their preferred lender and escrow organization.

Owner’s insurance, on the other hand, is completely optional. Basically, what title insurance does is cover the buyer and lender both against a loss that can result from a title defect, regardless of whether these are known or completely unknown at the time of the sale.

The above situation could arise in examples where someone who’s in bankruptcy and has no authority to sign a deed conveys it to another party or if, for example, a “buyer” forges a “seller’s” name to transfer the property to his or herself.

There are numerous instances where title issues can arise, and it’s important to realize that title insurance is different from homeowners or automobile insurance. Rather than covering a future mishap, it’s covering an existing but possibly unknown issue already in effect. When the seller of the property you’re looking into purchased the property in the past, the insurance policy covered any risks in place at the time they took the title, but nothing that would have arisen later on.

These situations occur rather frequently, as there may be a mechanic’s lien against the property, the home may have been sold at a tax sale, or the document may have been forged, but there are a number of other different reasons.

It’s a fairly complex issue, but at the end, the decision to get an owner’s title insurance policy is completely up to you, although there are some significant risks if you decide to go without it. Because of that, it’s important to go over the sale with an attorney before actually closing.

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