And is it necessary?
The home buying process can be a confusing and hectic experience, with some of the most complex decisions you might ever have to make in your lifetime. One of those decisions may be the choice of whether to purchase an owner’s title insurance policy. Click here for more information about the basics of title insurance. If you’re buying a house with a mortgage, the lender you choose will always require the purchase of a lender’s policy as a condition for the loan, but why would a homeowner also need their own policy? You might ask, if the lender is sufficiently protected, why would that not extend to the owner’s title rights as well? Why is this additional layer of protection necessary? Is it a racket or money-grab created by attorneys and insurance companies to add one more line item on the closing costs sheet?
The lender requires a title policy to protect the asset that they are lending money to be legally secure. That means they demand insurance from any and all other claims on that title, such as a fraudulent wild deed, an undisclosed federal tax lien against the property, or an indexing error by the county’s recording office. Any number of issues that could plague a title after the closing, the lender requires a policy that will defend their interest in the property. There are, however, plenty of ways in which, when taken to court, a lender’s interests may not be the owner’s and could possibly be adversarial to the owner’s title rights. It is in these cases that the owner should be represented in a costly property dispute, or otherwise be defended and possibly indemnified by the title insurance policy. Ideally homeowners would receive all the same title protection under a combined “blanket” policy, but that is not how these companies have structured their products. You must opt in to your own coverage.
Your home is likely to be the costliest purchase in your lifetime, along with your most effective wealth generating asset and, most importantly, physical shelter for you and your family. Just like almost any insurance policy, the chances of you needing to make a claim is vanishingly slim. You are already required to purchase a lender’s policy for hundreds of dollars wrapped into your closing costs, and the cost of the owner’s policy is a fraction of that, pennies on the value of the sale price. The cost/benefit calculus here adds up, if only to protect yourself if something happens. To answer your last question, an owner’s title insurance policy is not necessary, but it is highly recommended. It would be great if policies could be made that protect homeowner’s and lender’s title equally under a single expense without being an extra expense, but until that happens, we recommend opting for your own coverage.
If you have questions about how this decision may impact your closing, please feel free to contact any of our experienced real estate attorneys here at Law Firm Carolinas.