Owner’s Title Insurance: Why You Need It
At the time of settlement on the purchase of a home, every homebuyer is given the option to purchase owner’s title insurance. Owner’s title insurance insures that the purchaser has clear title to the property, free of any liens except for the buyer’s mortgage, if any. Title insurance does not insure against the common utility easements for sewer, water, storm drainage and other utilities on virtually all properties, nor does it insure against the normal restrictive covenants and assessments which are administered by the homeowners association for the particular development. Other than the foregoing items, the title to the typical residential single-family home, townhouse or condominium should not be subject to any restrictions on its use for normal residential purposes, nor should it be subject to rights of use granted to other third parties, and owner’s title insurance normally insures the purchaser that this situation is in fact the case. However, care should be taken to review the preliminary title search report issued prior to settlement to confirm this.
The purchaser will be required to pay for a lender’s title insurance policy for their mortgage company. The cost for just a lender’s title policy is generally less than the cost of an owner’s policy. However, the lender’s title insurance policy protects only the lender and does not protect the purchaser. Only through the purchase of owner’s title insurance can the buyer be assured and protected against the risk that the title to the home could be subject to things other than the normal items mentioned above. The lay person might think “Well, why should I pay the extra money to buy owner’s title insurance, if the person who has searched the title to the property did their job properly to locate and report anything that might be considered unusual?”
The first reason is the fact that most title problems not uncovered by a title examiner are not found until the next title search is done, usually shortly before you are about to settle on the sale of your home, which in most cases delays your settlement, and that delay causes other problems. Also, you may not be able to find the title examiner or it may be out of business. Secondly, if there is a real title issue that has to be resolved, and you did not purchase owner’s title insurance, you could be forced to pay yourself to cure the problem or hire an attorney and pay the attorney’s fees to resolve the matter. Unfortunately, this takes time and costs a great deal of money, all of which is avoided if owner’s title insurance is purchased. If you have owner’s title insurance, the title company pays to take care of the problem, pays the attorney, and in most cases can provide insurance for the buyer of your home, allowing the sale to go through and in the meantime dealing with the problem on your behalf. If you purchased only the required lender’s title insurance when you bought your home, none of these protections would be available to you.
In addition, the modern American Land Title Association (ALTA) homeowner’s title insurance policy insures against many risks today which were not insured by title insurance policies only a few years ago. For example, among other things, the homeowner’s title insurance policy insures against the following: (1) that the property violates an existing restrictive covenant; (2) the house or property violates an existing zoning or subdivision ordinance; (3) that because of an existing violation of zoning regulations, you are unable to obtain a building permit or are required by the government to correct or remove a zoning violation; (4) that you cannot use the property for a residential use because such use violates an existing zoning ordinance; and (5) if your neighbor builds structures in the future (other than boundary walls or fences) which encroach onto your property.
If owner’s title insurance is purchased, although the premium for an owner’s policy has a more expensive rate than for the lender’s policy, the title insurance company will give you the lender’s title insurance policy for a nominal additional charge, which is usually $100.00 or less. In addition, title insurance rates in Virginia have not increased for many years, and those in the industry do not foresee any increases in the future.
In summary, the homebuyer is well advised to purchase owner’s title insurance to protect their investment, thus avoiding the risk that serious problems and substantial unexpected expenses could come up in the future.
Disclaimers: This article is limited in scope and depth. We recommend retaining an attorney licensed in your jurisdiction because each particular property situation is unique. This article is not intended to create an attorney-client relationship with the reader. Further, this article is not intended to provide tax or financial planning advice.