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Topic: financial institutions

Why Purchase Owner’s Title Insurance?

Posted by Matt Brinner on December 30th, 2011

A question that real estate attorneys often receive is, “why purchase owner’s title insurance?”  I, myself, would not purchase a house or any parcel of real estate without an owner’s policy of title insurance.  It is a one-time only premium that is paid when you purchase the property and protects your interest in the property against loss due to title defects, liens or other encumbrances against title for as long as you own the property and, in certain instances, even after you sell the property.  In the event of a lawsuit attacking title (i.e., someone else claiming an interest in the property, a lender or other creditor claiming that a prior loan or judgment has not been paid off, a defect in title due to a document not being properly signed, a forgery, or other event of fraud or duress, etc.), your title insurance company will defend you and pay your legal fees (which could be very costly) or reimburse you for the actual monetary loss incurred up to the dollar amount of the insurance provided by the policy (generally what you paid for the property; and, under some policies, the coverage afforded actually increases a certain percentage each year that you own the property). 

Basically, title insurance is an insurance policy which insures that, upon recording of the closing documents, title to the property will be vested in your name.  The policy insures that the property, at the time of recording, will be free from all defects, liens and encumbrances except those which are listed as exceptions in your policy or are excluded from the scope of the policy’s coverage under the standard exceptions, conditions and exclusions from coverage found in the pre-printed portion of the form policy.  This is pretty substantial coverage for the one-time premium that you pay in exchange for the policy.  

Another reason title insurance is beneficial is because, when examining title, we, as examining attorneys, only review the records for the property and the current owners which are produced by the title company as part of its title search.  This actually minimizes the cost to you because if we did not have the title company’s search to rely upon, we would have to conduct our own search of register’s office and local courts in order to give you a proper legal opinion on title, which would be much more expensive than paying for an owner’s policy of title insurance due to the additional time that would be required in order to conduct an adequate title examination.   Since our examination of your title is limited to our review of the documents submitted to us by the title company, if you choose not to purchase an owner’s policy of title insurance and a problem appears in the future that the title company’s search may have missed (which happens more often than you might believe), you would be out of luck and could end up facing serious legal fees in sorting out the mess.  In other words, as cheap as title insurance is, it is not worth the risk of not having it. 

Finally, keep in mind that all institutional lenders are going to require that you pay for lender’s coverage which insures that the lender has a first lien deed of trust against your property to protect them in the event you default.  For purposes of illustration only, let’s assume you are purchasing a house for $250,000 and obtaining a loan in the amount of $200,000 to finance the acquisition of the property.  In Shelby County, Tennessee, the lender’s base coverage alone, if you did not purchase an owner’s policy, would be approximately $801.25.  Since you can get an owner’s and lender’s policies for a simultaneous issue rate of $1,060.12, the owner’s policy, in this case, would really only be costing you about $258.87.  That is cheap for $250,000 in coverage (and possibly more depending on the policy) for as long as you own the property. 

I hope this helps in explaining the point of title insurance.  If you have any questions, feel free to call me at (901) 576-1743.

Topics: title, title insurance, real estate, premium, judgment, property, . acquisition, owner, lender, banks, financial institutions