Owner Title Insurance
How it protects your equity.
Just imagine, you close on your new home. You move in. All seems well. Then one day the doorbell rings. It's a contractor who performed work on the property prior to your purchase. The problem is, he was never paid in full and has placed a Contractor’s Mechanic's Lien on your property. To make matters worse, the Contractor’s Mechanic’s Lien was never discovered during the title search because a land record clerk indexed the paperwork incorrectly. Suddenly, you must defend your title to your land and everything on it. Unfortunately, at the time of closing, you had purchased a policy insuring the lender and had waived your option to purchase an Owner Title Insurance Policy. Your only choice may be to pay the amount of the lien to secure your interest in the title and attempt to recover the payment from the sellers.
This situation, and others involving unexpected claims against your title, are why Owner Title Insurance Policies exist. If you had an Owner Title Insurance Policy under these circumstances, you'd be covered against the legal and financial problems resulting from a claim that jeopardized your ownership of the property.
The difference between the deed to your property and the title is this: your deed is evidence of the transfer of title to you, but the title is the property's legal history. Titles can have long histories and more than 50 problems that cannot be discovered by a title search.
Most mortgage lenders require you to purchase a Mortgagee Title Insurance Policy in their name. A lender does this to protect its financial interest in your property and to insure the validity of its mortgage as a lien on your property. But the policy you buy for your lender does not cover you. That's why it's important to have an Owner Title Insurance Policy.
In the Contractor’s Mechanic's Lien example described above, the Mortgagee Title Insurance Policy would protect only the lender. Most lenders require borrowers to invest 10 to 20 percent of the cost of the home. This is the owner's equity. If the owners purchase their home for $400,000 and have a $320,000 mortgage, they have $80,000 equity (your money) in your home. Therefore, if a Contractor’s Mechanic's Lien existed for $80,000, and the owners had $80,000 of equity in their property, 100 percent of the Contractor’s Mechanic’s Lien would be paid by you, the owner, unless you have purchased an Owner Title Insurance Policy. The Owner Title Insurance Policy insures the entire value of the property, whereas the Mortgagee Title Insurance Policy only insures the value of the mortgage. This is why the Owner Title Insurance Policy costs slightly more than the Mortgagee Policy.
Home buyers have the option of choosing the Standard Owner Title Insurance Policy or an Expanded Owner Title Insurance Policy that offers greater protection. Unlike other insurance, both the Standard and Expanded Owner Title Insurance Policies are paid for with a one-time payment, due at closing. The coverage under both the Standard and Expanded Title Insurance Policies continues in force as long as you own the property. Even after you sell the property by warranty deed to the new owner, you are covered if that new owner makes a claim against you. We can fully explain the coverage provided under the Owner Title Insurance Policy.
If the person claiming to have an interest in your property took legal action against you, your Owner Title Insurance Company would work to resolve the problem. In the event the matter goes to court, your interest and will be protected by the Title Insurance Company.
If you are the primary resident as well as the owner of your property, you can count on added protection when you purchase an Owner Title Insurance Policy. During each of the first five years of your policy, additional coverage is automatically added - at no cost to you. Coverage is accumulated yearly at a rate of 10 percent each year to a maximum of 150 percent after five years. Therefore, your equity is protected beyond the value of what's covered in the original policy.