An owner’s policy can seem like an unnecessary added expense to the already costly undertaking of buying a home. But it can save homeowners a lot of headache in the long run. Home ownership is not for the faint of heart. There are lots of added costs that come with buying and owning a home and new home buyers will often find themselves asking if certain expenses are necessary, mandatory or even legitimate. Here are some common objections to owner’s policies for title insurance.
Securing residential title services is in homebuyers’ best interests. Without the owner’s policy, title insurance only protects the lender’s interests. That means that you’re not protecting your investment by passing on this “optional” closing cost fee. Title insurance lasts for the duration of your mortgage debt, but an added owner’s policy will protect you or your heir’s interests in the property as long as it belongs to you.
New builds can still have issues with their title because the lot is not new. There may be issues with the land title, or even mechanics’ liens from the contractors who built the home. Easements, HOA liens, restrictions and covenants are also problems that an owner’s policy can take care of that can create problems with new builds.
Even if you’re purchasing a foreclosed property, the attorney for the foreclosing bank only reviewed the back title of the property and whether or not the bank is legally able to foreclose the property. Liens and debts could still be lurking in the shadows.
There can be title issues with land only purchases as well. Some possible complications include disputed property lines, unrecorded deeds, improper estate planning, divorce settlements and taxation issues.
If you’re purchasing a home with the intent of flipping it for a profit, an owner’s policy is still important, because it makes for a more efficient sale of the property. If there are any title issues that come up, you will be responsible for clearing them as you are the titled owner.
If the property is going to be an investment or a vacation home, it’s still an asset and it should be protected. Title defects do not care about your plans for the home, they are attached to the property regardless.
There are a lot of fees and surcharges that go into closing costs, and with homes being one of the biggest purchases made, seeing one more fee that is deemed as “optional” can make you cringe. But one owner’s policy goes a long way–generations even. Adding the policy at the time of purchase may come at a discounted rate, so don’t pass up the chance.
Although it may not be legally required, it is industry standard for a reason. All parties involved need to protect their interests as best they can, because defects are not uncommon.
Even if you looked at the preliminary report and found no red flags, that doesn’t mean that there aren’t any. Things like fraud and forgery are often slow to be discovered, but when they turn up, they cause major inconveniences.
Title defects are a huge hurdle to jump. You’ll want to do everything possible to avoid them. They are time consuming and can be very costly. As title defects affect the ability to sell a home, it’s a smart move to opt in for an owner’s policy. The banks are protecting themselves, home buyers need to follow suit and protect themselves accordingly.