When it comes to buying or refinancing a home, we often are asked the following questions: What is title insurance? Why do I need it?
Title insurance, sometimes referred to as owner’s title insurance or simultaneous title insurance, is a simple insurance policy that provides protection in the event someone comes along and contests your ownership of a property, as well as for those refinancing in the event that money is stolen when being wired between their banks. It also requires the title company to defend you in the event that your ownership is challenged.
If you think this can’t happen, think again. Consider the following examples from around the country.
Missouri Couple Saved from Foreclosure
A couple purchased a home from their landlord, who had taken out a $419,000 loan to purchase the property along with several other properties. The lien was missed during the title search, so the lender paid the landlord instead of paying off the lien. Despite making their payments, the bank sent a letter saying the home would be auctioned. Because the couple purchased an Owner’s Title Insurance Policy, the title company paid the lien and the husband and wife kept their home.
Texas Builder Sells Homes With Liens
A Texas-based builder sold first-time homebuyers houses that were encumbered by undisclosed liens. When Casa Linda Homes subsequently failed to pay its undisclosed debt, the creditors who were owed money then instituted foreclosure proceedings or filed lawsuits against the homebuyers. Because the deals were “seller financed,” the builder didn’t require the buyers to purchase title insurance, which would have protected the buyers.
Vacant Virginia Properties Fraudulently Sold
In Virginia, properties were sold to unsuspecting buyers. Unfortunately, the sellers weren’t the rightful owners of the properties. Instead, death certificates of the real owners were falsified and the fraudsters appeared at settlement to sign the closing documents. The criminals were caught and the properties were returned to the rightful owners. But what about the unsuspecting buyers? If they had purchased an Owner’s Title Insurance Policy they would have been covered. However, if they weren’t properly advised to protect their investment they would not have only been without a home, but also lost their entire down payment.
Calif. Non-profit Dissolves After Losing Suit
Mendocino Coast Television voted to dissolve its non-profit organization after losing a lawsuit that found the TV station never really owned its headquarters. An Owner’s Title Insurance Policy would have covered the costs of the non-profit’s lawsuit.
Underground Utility Lines
After a months-long search, you finally find your family’s dream home—a safe neighborhood and great schools, and a big backyard for the swimming pool you plan to build. You move in and hire a contractor, but a few days into construction the contractor finds an underground utility line running right through the middle of your backyard. You check your owner’s policy and find out that the title search did not discover this easement.
If the homeowner purchased an owner’s policy, their title insurance company would pay to have the underground utility relocated so they could build their swimming pool.
Fraud and Forgery
Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an owner’s policy protects you financially through negotiation by the insurer with third-parties, payment for defending against an attack on the title as insured, and payment of valid claims.
Innocent buyers purchased a home site through a real estate company, accepting a notarized deed from the seller. After the purchase, another couple—the true owners of the property who lived in another city—initiated legal action to prove they actually owned the property. Because the innocent buyer purchased an owner’s policy for a one-time fee at closing, the title company provided a money settlement to protect against financial loss.
As it turned out, a forger spent time in advance at the local courthouse, searching the public records to locate property with out-of-town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling most contacts through an answering service. Also, the identity of the notary appearing on deeds was fictitious as well.
Homeowners without this coverage would have lost their home.
REMINDER: For a one-time fee, an owner’s policy provides protection for as long as you or your heirs on the property. In addition to protecting your investment, an owner’s policy also covers the legal fees and the cost of defending your property rights.
When buying a home, you pay a premium for lenders title insurance, but that only protects the bank, not you. Owner’s title insurance can protect you from financial ruin, whether you are buying or refinancing. That’s why investing in owner’s title insurance is an important step in the process. It’s one of the best ways to protect yourself and your finances and is something we highly recommend.