Do You Need an Owner’s Title Insurance Policy?
When you take out a mortgage, your lender will order a title search. During this search, a title insurance company will review your home’s history to make sure there aren’t liens filed against it.
What is a lien?
A lien is another entity’s claim to your home. For instance, if your property’s previous owners failed to pay their property taxes, the county in which your home sits might file a lien against your home. If you purchase the home with that lien, you become responsible for paying the property taxes that the home’s former owners owe. Unpaid contractors or mortgage lenders might also file liens against a property.
What if you never pay off the lien?
Depending on the entity holding the lien, you could lose your new home through foreclosure.
The title search is supposed to uncover any existing liens. You can then request that the home’s sellers pay off the lien before you close on the home sale. If they don’t, you can walk away from the sale.
But there are times when title searches miss existing liens. That’s why lenders require that you purchase a lender’s title insurance policy when you take out a mortgage to buy a home. This policy protects the lender if a missed lien is discovered on your new home. However, this policy does not protect you. That’s where the owner’s title insurance policy comes in.
How owner’s title insurance works
An owner’s title insurance policy protects you if a missed lien is discovered after you purchase your new home. Buying this policy is optional.
This might sound unfair. After all, why should you be responsible for a lien that a title company missed? And while that might be true, if a lien for unpaid property taxes or past mortgage payments does pop up, you might face a hefty bill to pay it off. Paying instead for an owner’s title insurance policy can provide you with needed financial protection.
How much will an owner’s title insurance policy pay?
Your coverage will vary depending on the lien filed against your home. Usually, though, these policies will cover the cost of resolving the lien, paying it off (if the lien existed before you bought the property) and covering any legal fees you might otherwise have paid.
How much does owner’s title insurance cost?
The cost for owner’s title insurance depends on the value of your home. It varies, but you’ll usually pay 0.5% to 1% of your home’s purchase price. For a $400,000 home, you can expect to pay a one-time fee of $2,000 to $4,000 when you close on your mortgage.
Once you purchase an owner’s insurance policy, it remains in effect as long as you own the home. You won’t have to make regular payments on it.
Should you purchase one of these policies?
That depends on whether you are more interested in paying as little as possible in closing costs when taking out your mortgage or you’d rather eliminate the possible financial hit of a future undiscovered lien. Work with your real estate, financial and legal professionals to make an informed decision.
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