Purchasing Owner's Title Insurance
Most people choose to protect their real estate investment by purchasing owner’s title insurance. Owner’s title insurance can afford property owners protection against loss or damage due to title defects and claims against their property due to unforeseen or undisclosed matters that cannot be readily detected by title examinations or that result from error or oversight.
Why Should I Buy Owner’s Title Insurance?
Prior to closing, a real estate attorney examines title to the property to determine the state of the title and whether the seller is able to transfer good title to the buyer in accordance with the contract. At closing, the buyer takes title to the property through the execution and delivery of a deed by the seller (usually a limited or general warranty deed). After the closing, however, and despite a thorough title examination by the attorney, title issues can arise that may jeopardize the buyer’s claim of ownership. Such title issues, or title defects, include:
- Documents recorded during the time period between title examination and closing
- Unrecorded documents that may give other individuals or entities an interest in the property
- Encroachments by fences, driveways or other structures
- Forged documents
- Invalid or fraudulent probate of wills and estates
- Improper foreclosure
- Incorrect marital status of owner
- Invalid or contested divorces
- Liens filed by contractors or others who have not been paid for labor, materials or services provided on the property
- Previously undisclosed heirs with claims to the property
- Tax liens
- Transfer of the property by a minor or mental incompetent
- Property line disagreement
- Mistakes in the public records
Title claims pose a great risk to property owners. If a title claim is valid, the buyer risks expenses and actual loss, up to and including loss of the entire property and all equity in it (while still having to pay back a loan on the property). If the claim turns out not to be valid, the buyer still has to pay out of pocket to defend the claim or to rid the property of a cloud on its title. On the other hand, buyers who purchase owner’s title insurance have a title insurance company behind them that has the obligation, whenever coverage exists, to pay the costs and fees incurred to defend the property owner and to pay losses that ultimately occur as well. Owner’s title insurance is a buyer’s option, but most real estate professionals will recommend it as an important protection for a valuable investment.
I borrowed from a lender to buy my home. Doesn’t my lender purchase title insurance?
When a buyer is purchasing property through a loan, the lender will require that closing costs include a lender’s title insurance policy or a policy that protects the lender’s interest in the property. The lender’s title insurance policy does NOT protect the buyer if a title issue arises. The buyer remains at risk of loss and costs associated with the title issue unless the purchaser is an insured party under an owner’s title insurance policy.
What if I am buying new construction?
Newly constructed homes are not immune from title issues because those issues derive from the land that has always had a long history. Title issues are as likely to occur with new homes as with older improved properties. Also, new construction carries the added risk that contractors and suppliers who have recently provided labor, materials or service have filed a lien against the property for nonpayment and that such lien is not apparent upon title examination.
Owner’s Title Insurance is Too Expensive
Title insurance is paid through a one-time premium, usually at closing. Given the cost of insurance in general, this single premium is relatively low cost in Georgia while affording significant protection to the property owner. If a title claim arises, merely consulting a lawyer to defend the claim can cost a property owner more money than the policy premium.
What is Enhanced Title Insurance?
Title insurance companies offer a standard owners title insurance policy, which provides basic coverage, and they now offer an enhanced policy with expanded coverage.
Standard title policies protect against title issues that existed prior to the issue date of the policy (typically the closing date) and cover the cost of legal defense of the title. The actual policy lists the numerous title issues covered, including many of those listed above, along with a list of exclusions from coverage.
Expanded or enhanced title insurance offers superior protection. In addition to the standard coverages, enhanced title insurance policies cover a wide range of issues that are hard to detect, such as restrictive covenant violations, building permit violations, zoning law violations, supplemental taxes, undisclosed encroachments and easements. Moreover, enhanced policies tend to provide for automatic increases in coverage limits. For more information on the benefits of enhanced policies that may vary for different issuers, please contact Weissman or a title insurance company.
Because of this expanded coverage, most real estate professionals, Weissman included, will recommend an enhanced owners title insurance policy over a standard policy.