There is a difference between an Owner's Policy and a Lender's Policy:
Lender's Policy -- Insures that the lender has an enforceable mortgage lien and that it is secured in the proper position of collection priority. In other words, that there are either no other liens ahead of them or, if there are, they are aware of them and accept them as a part of their loan product, (i.e., a second deed of trust or a home equity loan).
Owner's Policy -- Insures that the owner has the legal and insured right to title without interference from parties claiming a right to that property. This may be from a lost or missing heir of any prior owner or any person who may have held an ownership interest in the property, and failed to convey that interest to successive owners.
A common instance where an Owner's Title Insurance Policy is important is if, for any reason, a lien is not properly released from the property. You purchase a property and the sellers have a deed of trust on it which is paid off at closing. But for some reason, the release documents are never recorded. If you decide to sell the property and a new title search is performed, that lien will show as open on the land records. This discovery can delay or nullify your sale. However, with an Owner's Title Insurance Policy, you may be able to proceed to closing with indemnification by your insurer.
The same scenario could occur with any lien that is revealed from subsequent title examinations -- which are performed each time you sell or refinance your property. Insured owners receive a delinquency notice from the local tax office for unpaid taxes or the homeowners association for unpaid fees. Often, it's simply a clerical or billing error, but it takes many hours and many phone calls to fix the problem. In many cases, there are unpaid balances. As a part of our coverage to the insured, we have written a check to settle the accounts and prevent further action. Even "non-claims" can be cumbersome and expensive to research and correct. Actual monetary losses for failure of title or performance are extremely costly and can be financially devastating to an owner who does not have title insurance.
The following is a brief list of risks protected against with an Owner's Title Insurance Policy:
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Undisclosed or missing heirs
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Lack of mental competence by grantors
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Clerical errors in recordation of documents procedure
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Judgments or liens filed against prior owners
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Conveyance by a minor
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Unsatisfied claims not shown of record or not immediately apparent
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Delivery of deed by non-authorized person(s)
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Incorrect indexing of documents by clerks office/recorder of deeds
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A third part claims an interest in the title
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Documents executed under fraud or duress (pre-policy)
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Non-recorded restrictive covenants
Think twice before choosing to go without Owner's Title Insurance. It's a one-time premium that affords you with peace of mind on a most important investment -- your home.