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What is Owner’s Title Insurance & Why Do I Need it?

You’re ready to close on your newly purchased home—congratulations! The paperwork is ready to sign, and your Realtor® is guiding you through the next steps. It’s an exciting time, right?

Buying a home is complicated, and there are many factors within even the most straightforward transactions. Among these factors is Title Insurance, which mortgage lenders will require you to pay for at the time of closing on your new home.

Read on for our comprehensive overview of what title insurance is and why lenders require it.

What is an owner’s title insurance?

First, let’s define what a title is. A title refers to the ownership of your property and gives you the right to use that property. Essentially, it’s a legal verification that you own the property.

An owner’s title insurance protects you from claims and lawsuits from the previous owner. We know what you’re thinking—I bought this home fair-and-square, so why would the previous owners sue me?

There are many reasons why the previous owner or someone associated with their estate would potentially seek litigation against you. We’re going to list them below, so you can fully understand why title insurance is a necessity that protects your newly purchased home.

How Title Insurance protects you

Now that we know what owner’s title insurance is, let’s explore the potential scenarios wherein an Owner’s Policy can protect you and your home:

Errors in Public Records: Yes, it is true.  Clerical mistakes or errors in filing occur frequently and can be time-consuming and costly to fix.

Unknown Liens: Previous owners who did not pay a bill may have a lien on the property.  While this can occur with any property, it is common with distressed properties, such as short sales and foreclosures. Creditors may only look at the property itself and care little for who the owner is. Someone else’s unpaid bills could become your problem.

Illegal Deeds: The title search ensures you and the lender that there are no other “claims” of ownership or deeds on the property.  Occasionally, the title search will uncover an issue in the chain of title.

Missing Heirs: Missing heirs or contested wills may show up before or after you purchase a property.

Forgeries: Forged documents recorded with the county and unbeknownst to you or the lender could interrupt your title rights.

Undiscovered Encumbrances: Encumbrances can come from a third party holding a claim to all or part of your property. Or, non-financial claims such as restrictions or covenants could limit the use of your property.

Unknown Easements: Easements give rights to others [such as government agencies, businesses, or even neighbors] the right to access all or part of your property.

Boundary/Survey Disputes: A survey of your property can be performed to define your property boundaries. Former surveys may differ and allow a neighbor or other party to claim ownership of a part of your property. Please note that not all states require a survey to be done when a property is sold. Speak with your Realtor® for more information about how to protect yourself in the state where you are buying your property.

Undiscovered Will: When you purchase a home sold by the state on behalf of a person with no will, it seems legitimate that your rights would be safe.  However, the deceased owner’s will may materialize at any time, and your rights could be in jeopardy.

False Impersonation of a Previous Owner: It sounds odd that someone could falsely impersonate a previous owner and sell a property falsely.  Yet it happens, so why not be protected?

Better safe than sorry

Now that you have a better idea of what is an owner’s title insurance, you’re in a better position to safeguard your newly purchased property. Whether you’re buying an investment property or a home to call your own, it’s smart to place legal distance between you and the previous owner and their issues. It’s pointless to purchase someone else’s headaches.

Laws may vary from state-to-state, so it’s vital to have an expert Realtor® in your corner who understands these complexities.

We have an experienced team of professionals ready to guide you through the steps needed to protect your home, mortgage, and peace of mind. Contact us today with any questions you have, and we’ll help you get into a property that’s truly your own.

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