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Owner's Title Insurance
What is it and do I need it?
A home is usually the largest single investment
of a person's life. At the time of a purchase of a home, homeowners will
purchase several types of insurance coverage to protect the structure (house)
and the personal property (belongings) within it. Homeowners insurance (also
known as hazard insurance) protects against loss from fire, theft and other
casualty damage. Flood insurance (if applicable) protects against rising water
or flood conditions that may cause damage. A unique coverage which protects
against hidden title hazards that may threaten the financial investment in your
home is known as title insurance.
While title insurance is not as universally
understood as other types of home insurance, it is, without question, as
important. The general public often views a purchase as simply buying a building
or a piece of land. In the eyes of the law what is being purchased is actually
the right to occupy or use the space - the "title" to the property. The title to
the property may be affected by the claims and rights of others which brings
with it the potential loss of the use and enjoyment of the property and, in a
worst case scenario, a potentially catastrophic financial loss. Title insurance
is designed to protect against these scenarios.
It is telling to note that whenever a purchase
or refinance loan transaction is entered into by a homeowner the lending
institution or bank requires that the homeowner purchase (for the benefit of the
lender) a loan policy of title insurance. A loan policy of title insurance
protects only the bank. At the time of the purchase of a property the homeowner
has the option to purchase an owner's policy of title insurance. An owner's
policy of title insurance will protect the homeowner. As mentioned above your
lender or bank requires that a loan policy of title insurance be purchased to
protect their investment. The homeowner is well advised to purchase an owner's
policy and protect his/her interest.
Although the attorney handling the closing
certifies title, by statute it only requires a fifty (50) year inquiry. A number
of title concerns can impact a homeowner's property even if the closing attorney
has performed his duties flawlessly. It is these possible hidden hazards which
an owner's policy of title insurance most effectively guards against. Common
examples of hidden dangers include a) forged signatures on deeds, b) heirs of
previous owners who were either intentionally or inadvertently omitted from
probate proceedings and now assert a claim of ownership against the property, c)
documents executed under expired or fabricated powers of attorney, and d)
mistakes in the public record (recording errors or omissions). Additionally,
outstanding mortgages, tax liens, easements or other conveyance documents could
exist which materially affect the marketability of a homeowners title. If the
homeowner purchased an owner's policy of title insurance and one of these title
issues arose, an attorney would be assigned by the title company to defend such
a title claim. In the event that the title claim was ultimately successful
against the homeowner the title insurance company would pay for the loss
suffered. The owner's policy of title insurance also contains a provision
whereby the coverage amount (the purchase price of the property) increases as
the property appreciates (up to a maximum coverage of one hundred fifty percent
(150%) of the original amount). Accordingly, in the event of a title issue the
homeowner who purchased the owners policy of title insurance would be protected
against a potentially devastating financial loss. The policy issuing title
company will also act to expedite the closing of a sale or a refinance of your
property in the event an outstanding title issue exists (which would otherwise
delay or even cancel the transaction) thereby allowing the transaction to go
forward. An owner's policy of title insurance (unlike homeowners or other
liability coverage) is a one time premium with no additional annual premium
which provides coverage for as long as the homeowner owns the property.
In short an owner's policy of title insurance
can be the last and best line of defense enabling a homeowner to avoid a
potentially disastrous financial situation. When you purchase your home it is
prudent advice that you consult with an attorney regarding the purchase of an
owner's policy of title insurance. An owner's policy of title insurance provides
valuable protection for your most important asset - your family home.
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