Title insurance, owners coverage title insurance versus lenders coverage title insurance

Hello. I wanted to have a quick discussion on owners coverage title insurance. So you’ll see that lender’s coverage title insurance is mandatory. It’s required by the lender for you to get title insurance that protects them. Owner’s coverage title insurance provides protection to the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it. For example, let’s say you buy a home and two years later you get a notice from a plumber that says you owe them $5000 and you say, “I don’t even know who you are. I don’t know what you’re talking about.” And they say, well, four years ago, prior to you owning it, they did some work and they were never paid. Somehow the title company never found out this outstanding lien or judgment against the property at closing and now you’ve got exposure. Your owner’s coverage title insurance would kick in and protect you.

Pros and cons

So you’ll hear pros and cons. There are people that say, “That’s a long shot. You’ll never need owner’s coverage title insurance. It’s a waste of money. Why pay for it?” And that may be true. You’ll have to do your own homework and think it through on your own. I think the owner’s coverage title insurance, some pros and cons are, first, it’s a one-time charge. You pay it at settlement. If it’s $1500 and you plan to own the property for 10 years, that’s $150 a year for peace of mind, $12.50 a month to be protected. And in the off chance that something happens… And I’ve seen it happen before.

A real life example

I had a client tell me that four years after they bought a place and went through me for the mortgage, they called me up and said, “We don’t own our place.” And I said, “What are you talking about? Of course, you do.” Well, they bought the property from an estate. There were seven parties to the estate, sons and grandsons and nieces and nephews.

One of them mistakenly didn’t sign the deed at settlement. And if you don’t have all signatures from all sellers on the deed, there’s not a proper transfer and they were correct, they didn’t own the property technically. So nobody thought it was a big deal. They would go to the seventh person and get that signature. Well the seventh person said, “What’s in it for me?” They knew they had everybody over a barrel and what ensued was a multi-year legal battle.

My clients did not have owner’s coverage title insurance and it cost them a lot of money. Ultimately, everything worked out. But, they had to pay a lot of money to fix the problem.

Do your own homework

That might be a rare instance but you really need to think about the pros and cons. Do some Google homework on your own. Google owner’s coverage title insurance. You can read this article, which is on the Consumer Financial Protection Bureau. Just google “what is owner’s title insurance CFPB” and you’ll find this article.

And maybe if you’ve got a family friend or a family member that’s a real estate attorney or an attorney in general, maybe they can offer an educated opinion. Maybe talk to your realtor. Talk to the title company. They’re probably gonna be an advocate for you to pay for it because it’s a profit center for them, but you should get their opinion as well. Get everybody’s opinion that you can make a balanced and educated decision, and then make a decision if you should get the owner’s title insurance, which is optional. It is optional. That’s why we’re having this discussion.

Owners coverage title insurance is optional

The lender’s coverage title insurance is mandatory. The owner’s coverage title insurance is optional. So do your homework, make a decision, let the lender, let me and your title company know your decision so we can make sure that the cost is in your closing cost at settlement or not, if you choose to opt out of it. Let me know if you have any questions. Thank you.

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