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Do I Need Owner’s Title Insurance?

October 21, 2022

Getting a title is one of the many crucial phases in the process of purchasing a home. This legal document attests to the fact that the seller gave you ownership rights to the property. But what happens if the sale encounters monetary or legal issues? Unexpected issues with your new house could end up costing you more than the purchase price.

And that’s how title insurance can help.

Title insurance, just like the title, is a must if you're planning to buy a house. In this post, we'll explain exactly how owner’s title insurance works and why it's important.

But first, let’s talk about the basics.

What Is Owner’s Title Insurance On A House?

A policy known as title insurance is designed to provide coverage to homebuyers and mortgage providers from harm or financial losses brought on by a defective title because of title defects. Often, it includes conflicting wills, back taxes, and outstanding liens.

Most title insurance policies include coverage for all types of common claims made against a title, including unpaid taxes, liens, and competing wills.

Numerous situations might result in a title issue, which can compromise your legal possession of a property and render a title "poor," from code violations to legal difficulties.

For example, after purchasing a property, you found out that the previous owner does not truly own any legal rights to it or that another party is contesting their claim.

How Title Insurance Works?

As mentioned, title insurance protects you from unexpected issues that might result in an invalid title. Working with a title company might help you with that, too; however, having a policy is still a must.

The process through which a title company confirms that the seller has the authority to transfer the title to you, known as a title search, is accompanied by policies. Purchasers and lenders are shielded from any title flaw that could result in substantial losses by title insurance.

These are just some of the basic things you need to know about owner’s title insurance. Now, let's take a closer look at the specific types of coverage that title insurance policies can offer.

What Title Insurance Covers?

There’s a difference between lender's and owner's title insurance, and this is something you have to consider. Both provide significant protection for the parties involved in the real estate transaction, but both function differently.

Let’s talk about the owner's policy first.

Owner’s Title Insurance

The majority of owner's title insurance contracts are bought as a safety net against potential risks. An owner's policy, although optional, often shields the house buyer against the most typical hazards, such as:

  • Outright forgery or fraud
  • Will problems, similar disputes, and the like that may result in conflicting claims
  • Pending liens, litigation, and other encumbrances against the property would defeat the seller's claim
  • Unreported easements or other contracts that could restrict use or lower the value of the property
  • Public records that are inaccurate or faulty, even when they contain honest errors like wrong signatures

Although this is optional, an owner's title policy can be an extra safety measure that increases your sense of security as a buyer. There's always a danger that anything will go unnoticed, even if you hired a title company to investigate the properties.

Lender’s Title Insurance 

Before the approval of a house loan, a lender will require the borrower to have a lender's title insurance. The policy is often offered by the title business to signify the completion of their title search.

Like the owner's policy, its main purpose is to protect the lender from potential losses if the seller is unable to transfer title rights legitimately. Up to the amount of the loan, the lender is protected. However, such a policy only protects the lender.

A lender's policy won't cover you if you end up with unpaid taxes and aren't personally insured, but an owner's title insurance policy will.

Warranty Of Title

A warranty of title is a representation made by the seller that they are legally able to transfer ownership to the buyer and that no other party has any claims to the property. The warranty entitles the purchaser to legal action against the seller if it turns out that another party has a claim to the property.

Warranty titles are usually included by default; however, in situations like auctions, estate sales, and the like where the seller is acting as a representative rather than the owner, a warranty of title may not be included because the representative is not aware of any competing claims. In this case, a home buyer might still want to think about getting title insurance.

Purchasing a new property is both exciting and stressful. Fortunately, there are ways to protect yourself, such as owner’s title insurance, which can provide relief. Other than this, be sure to work with a trusted title company, such as IndyLegal.

So if you need guidance or clarification regarding purchasing a new home, just hit the comment section or call us at 317-214-6023.

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8315 W. 10th Street
Indianapolis IN 46234

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