Why is Title Insurance important?
A home is usually the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage’s to protect your home and personal property. Homeowner's insurance protects against loss from fire, theft, or wind damage. Flood insurance protects against rising water, and a unique coverage known as title insurance protects against hidden title hazards that may threaten your financial investment in your home.
Your Title may have some very expensive strings attached
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 Mechanic’s Lien on your interest in the property. To make matters worse, the lien was never discovered during the title search because a land record clerk indexed the paperwork incorrectly. Suddenly, you must defend your claim as clear holder of the 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 Policies exist. If you had an Owner Policy under these circumstances, you’d be covered against the legal and financial consequences resulting from a claim that jeopardized your ownership of the property.
Knowing the difference between your deed and your title
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.
How your owner title insurance protects your equity
In the Mechanic’s Lien scenario previously described, the Mortgagee Policy would protect only the lender, and only if the lender has incurred or sustained a loss or damage as a result of the title problem. 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 $200,000 and have a $160,000 mortgage, they have $40,000 equity in their home. Therefore, if a Mechanic’s Lien existed for $10,000, and the owners had $40,000 of equity in their property, 100 percent of the lien would be paid by the owners, unless they have purchased an Owner Policy. The Owner Policy insures the entire value of the property, whereas the Mortgagee Policy insures only the value of the mortgage. This is why the Owner Policy costs slightly more than the Mortgagee Policy.
Your lender may be insured, but are you?
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.
Reference: CATIC Title
This website provides general information about the Law Office of Kelly J. Gallagher LLC and its attorneys and is not intended as legal advice nor should you consider it as such. You should not act upon this information without seeking professional counsel.