This article was originally published in Real Estate Agent Magazine Twin Cities, written by Charity Malmberg, Founder and President of Trademark Title
Each year, approximately 20 percent of homebuyers fail to protect themselves by not getting owner’s title insurance. Unfortunately, this leaves them exposed to serious financial risk – causing endless worry and regret.
Here is what your clients need to know to protect themselves and their property rights so they can rest assured after the sale has closed.
Looking For Potential Threats
During the home-closing process, the title professional will help transition the home from the seller to your client, the homebuyer, by examining public records. Generally, if a problem is discovered, the title professional works to resolve them before the purchase is complete.
However, even after a title search is performed and your client purchases the home, problems could arise that threaten their ownership rights. Examples include:
- Undiscovered tax liens.
- Forged signatures in the chain of title.
- Recording errors.
- Undisclosed easements.
- Title claims by missing heirs or ex-spouses.
Owner’s title insurance protects your client’s property rights from threats like these. Here’s a real-life example of how it works.
A claim was received by a local title underwriter because Torrens would not record the deed to transfer ownership from seller to purchaser. As it turns out, the lender who foreclosed on Lot 8A didn’t own Lot 8B as the sales contract, title commitment and deed stated. The mortgage had only encumbered Lot 8A, thus through the foreclosure process only owned Lot 8A, not Lot 8A and Lot 8B. This fact was not discovered during the closing process, only at the time of recording. The underwriter and/or title agent paid for the new owner’s defense of a lawsuit filed by an adjoining neighbor to eliminate interest in her property, thereby denying access to insured owners.
This story has a positive ending, but without owner’s title insurance, the new owner could have faced serious costs to defend his or her property rights.
There are two types of title insurance– lender’s title insurance and owner’s title insurance.
Lender’s title insurance is required by most lenders and banks because it protects their loan investments. Usually, homeowners purchase this policy as the homebuyer. If your client only has a lender’s policy, where the outstanding loan is covered, their equity is not protected. Therefore, they could have their property rights taken away if someone else has claim to their home.
Owner’s title insurance is the policy that protects their property rights from legal and financial threats like those mentioned in the story you just read. That’s why millions of homebuyers each year make the smart decision to get owner’s title insurance. It’s a low, one-time fee that provides the peace of mind that every homebuyer deserves, for as long as they own the home.