A recent article on title insurance in Inman News explained the difference between a lender’s title policy and owner’s title policy when purchasing a home. In summary, a lender’s title policy protects only the lender from “hidden” title defects, while the owner’s title policy protects the owner from the same defects.
When you purchase a home, the title company or attorney will research the properties title history. But even the most exhaustive title search, “hidden” defects can surface years later. The owner’s title policy is a one-time cost paid at closing by the buyer, and is the best protection against title defects. It will protect you and your heirs for as long as you own the property. Title insurance also remains in effect if the property is move to a trust, as long as the original insured is on the trust.
Here are 10 most frequent title defect issues:
- Forged deeds, mortgages, satisfactions or releases.
- Deed by person who is insane or mentally incompetent.
- Deed by minor (may be disavowed).
- Deed from corporation, unauthorized under corporate bylaws or given under falsified corporate resolution.
- Deed from partnership, unauthorized under partnership agreement.
- Deed from purported trustee, unauthorized under trust agreement.
- Deed to or from a “corporation” before incorporation, or after loss of corporate charter.
- Deed from a legal non-entity (styled, for example, as a church, charity or club).
- Deed by person in a foreign country, vulnerable to challenge as incompetent, unauthorized or defective under foreign laws.
- Claims resulting from use of “alias” or fictitious name style by a predecessor in title.
There are dozens more ways a title defect could force you to lose your home, unless your protected by title insurance. Download a complete list of 70-Something Ways You Could Lose Your Home, and make sure to purchase an owner’s title insurance policy for all property you purchase.
What happens if a defect is found is a topic for another time. However, if a defect does surface, the owner’s title policy covers all the costs to remove the defect, including legal fees. This can save be a savings in the thousands of dollars.