Ken Viscarello's NH Legal Perspective: Owner's title insurance in residential transactions
BUYING A HOME is possibly the largest financial investment a person or family will make in a lifetime.
More importantly, buying a home is an emotional investment that involves putting down roots and making memories. If you're fortunate enough to be in the position to purchase a home, at some point in the process someone will ask you if you want to purchase "owner's title insurance."
In the majority of cases your answer should be "yes." The home buying process may feel like you're spending money hand over fist.
Not only do you have the down payment, the closing costs and the escrows, but there are also costs for moving, buying furniture, etc. The idea of spending even more money, for an insurance that is difficult to understand, is unappealing.
The purpose of this article is to explain what risks title insurance covers and why, in most cases, it's a good idea to spend the extra money to purchase owner's title insurance.
Generally, title insurance protects a home owner against any loss they may suffer if a problem arises with the title that was not found during the title search. When you buy a house, and get a loan from a lender, a lot of things happen behind the scenes that the home buyer never sees.
One of the most important things that happens is that the lender hires an attorney or title company to handle the closing and perform what's known as a "title search."
A title search is a review of the title to the property. An attorney, or trained paralegal, will search the public records to look for any problems with the home's chain of title.
A chain of title might look something like this: Mr. and Mrs. Smith owned the property from 1948 to 1963, and they sold it to Mr. and Mrs. Jones, who owned it from 1963 to 1987, and they sold it to Mr. and Mrs. Harris who owned it from 1987 and who now want to sell it to you. They will make sure that all the deeds were properly signed and notarized and that the correct property description was used.
They will also examine the title to see if there are any easements (rights by others to use the property, e.g. a right to pass over the property) or mortgages that still burden the property.
Occasionally, problems occur that could not be found while doing the title search or matters were inadvertently missed while doing the title search. Title insurance is designed to cover these problems.
For example, if while performing a title search, the examiner misses an old, unpaid mortgage, the title insurance company will not only pay for any loss suffered by the home owner, but also the legal costs and expenses associated with any court or other action necessary to resolve the matter. Owner's title insurance also covers, errors or omissions in deeds, forgery, undisclosed heirs, incapacity of grantors in the chain of title, misindexed documents or mistakes in recording.
One appealing aspect of title insurance is that there is only a one-time fee. Unlike other types of insurance (auto, home, etc.), you won't receive a bill every month. You pay the premium at the closing and the title insurance is good for so long as you or your heirs own the home.
Title insurance is usually issued in the amount of the purchase price of the home. Your bank will also get a title insurance policy, paid for by the home owner, and usually for an additional expense the title insurance company will issue an owner's title insurance policy.
One question that's frequently asked is "why do I need title insurance if my bank is getting a lender's title policy, doesn't it cover me too?"
Although the home owner's and the bank's interests are somewhat aligned, the short answer is "no," it does not cover the owner.
The owner is not a named insured on the lender's policy and the lender's policy only covers the amount of the loan, so coverage correspondingly decreases as you pay down your loan.
The bottom line is if you are purchasing a home, you should seriously consider purchasing an owner's title insurance policy; however, each case is different and title insurance is complicated. At the time you actually consider purchasing a home you should consult with an attorney about the best course of action for you.
NH Legal Perspective is a bi-weekly column sponsored by Sheehan Phinney Bass + Green PA. This column does not provide legal advice. We recommend that you consult an attorney for specific guidance on legal questions.