Real estate is a major financial commitment for most Americans and one of the most valuable assets to own. To protect such an investment, many homebuyers opt to purchase title insurance, which helps safeguard against financial loss in the event title defects surface after closing. While lenders generally require homebuyers to purchase a “lender’s” title insurance policy, “owner’s” title insurance is entirely optional – but highly recommended. Here’s why.
Clouds on Title
Title defects, also referred to as “clouds on title,” are obstacles preventing the proper and full transfer of ownership from one person to another, giving one or more parties some sort of claim, rights of use, or value of possession in a property. There is a wide array of title defects that can exist, but some of those most common include unreleased deeds of trust, clerical or recording errors, improperly probated wills, and judgments or liens. Any type of title defect, no matter how seemingly minor, can stall the closing process and interfere with a real estate sale.
Lender’s vs. Owner’s Title Insurance
Mortgage lenders almost always require homebuyers to purchase a lender’s title insurance policy, which protects the financial institution against loss that may arise from the discovery of title defects after closing or if the mortgage becomes unenforceable for any reason.
Though owner’s title insurance is not mandated, it is generally recommended for the majority of homeowners. An owner’s policy can cover legal costs should it become necessary for a homeowner to defend their property rights in court. It can also remunerate the policy holder if they lose the property to another party over such enforceable property rights. As a one-time payment, an owner’s policy is purchased at the time of sale and covers the homeowner for as long the property remains in their possession. Owner’s title insurance policies are typically valued at the original purchase price.
Get the answers to your title insurance questions today! Contact our experienced team at Linear Title & Escrow to learn more.