As co-owners of a local title company, we are often asked, "Why do I need title insurance?" The answer may vary depending on your circumstances. As with most insurance policies, usually nobody is excited about paying for something that you hope you never need to use. However, unlike your home or car insurance, property insurance is a one-time fee that provides protection for as long as you own your home.
When you are financing your home, your lender requires a lender's ownership policy to ensure that their security interest in your property (the mortgage) is superior to anyone else who may have an interest in your property. The amount of coverage for the lender's policy is equal to the amount of the mortgage outstanding. Since you are already paying for property insurance from the lender when you buy a home with a mortgage, the extra cost of property insurance is only marginally higher and it just makes sense to include the owner's policy – so that you are covered. The lender's policy alone does not provide cover for you as the owner.
Before closing the sale and financing of your home, the company performing the closing searches the public records for liens (public or private), encumbrances (outstanding mortgages or restrictive agreements from a condo or homeowners association), or easements (utilities) or other agreements regarding the use of your property). If there are any problems, they can create a title cloud that usually needs to be fixed before closing.
Because our local market has a lot of cash deals, we are often asked, "If I can't get a mortgage, why do I have to pay for legal expenses insurance?" In this case, an owner's property policy protects the owner from similar undiscovered liens or encumbrances affect the ability of the owner to use his property as intended. The amount of coverage for an owner's property insurance is usually the purchase price of the home. In some cases, such as a fraudulent transfer, the owner's ownership policy would protect them from economic loss if they were unable to inhabit the property. Without an owner's ownership policy, your only option, in the event a legal deficiency is found, is to sue the seller / guarantor based on the warranty document you received at the time of your purchase / deal. If that seller / giver has passed away or is untraceable, or does not have the assets to compensate you for any losses you may suffer, you will be left without appeal (unless you have legal expenses insurance).
There are several instances where an owner's property policy provides protection either while the owner is owning the home or when selling that home. A common problem in our marketplace can be related to will or inheritance claims originating from heirs asserting an interest in transferred property. In addition, improperly recorded documents, which may constitute a legitimate lien on the part of contractors for work previously carried out on the home (either new build or repair work on the home), can cost significant amounts to either satisfy or clear them up; this would be covered by an owner's property policy. Other risks that are very difficult to detect, but are still covered by an owner's policy, are: forgery, fraud in the execution of documents, improper manipulation of a certifier, mental incapacity, expired or false powers of attorney, wills not properly notarized, errors in surveys or legal descriptions and other hidden title risks.
Whether you are financing the purchase of your home or paying for it in cash, it is always wise to take out property insurance to cover any unknown or unforeseen property defects that could prevent you from enjoying your new home. The security of using your property as desired and / or selling it in the future is worth the investment.
Peter Crowley is President of the Re / Max Alliance Group.
source https://seapointrealtors.com/2021/07/26/why-you-need-title-insurance/
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