Definition
Owner’s title insurance is a one-time insurance policy that protects homebuyers from financial losses related to ownership disputes, liens, or title defects that may arise after purchasing a property. This policy ensures that the buyer has clear and legal ownership of the home.
Explanation
When a home is purchased, a title search is conducted to verify that the seller has a clear title with no unpaid debts, legal claims, or ownership disputes. However, hidden title issues may surface after the purchase, including:
- Undisclosed liens – Unpaid debts attached to the property.
- Forgery or fraud – Falsified ownership records or forged documents.
- Unknown heirs – Long-lost relatives claiming ownership rights.
- Clerical errors – Mistakes in public records affecting property ownership.
Owner’s title insurance covers legal fees and financial losses if any of these issues arise. It differs from lender’s title insurance, which protects the mortgage lender rather than the homeowner. While owner’s title insurance is optional, many homebuyers choose to purchase it for peace of mind and legal protection.
Example
A homebuyer purchases a property and receives a title insurance policy at closing. Two years later, a previous owner’s unpaid property tax lien surfaces, and the local government attempts to collect payment from the current homeowner. Because they have owner’s title insurance, the policy covers legal fees and financial losses, ensuring the homeowner does not have to pay the lien.