Property Ownership - How Secure Are You?

Real estate is traditionally a family's most valuable asset, and many laws have been passed to protect it. While most of these laws are set up to protect the owner, their family and heirs, others may have claim on the property.

In certain situations, governmental bodies, contractors, lenders, judgment creditors and the Internal Revenue Service may also lay claim to property, sometimes without the owner even being aware of it.

An owner's title insurance policy provides homeowners with coverage against most of these occurrences. Title insurance is sometimes the difference between actually owning a property and just thinking you do.

Title Search - The First Step

Before you buy a piece of real estate, a complete investigation of the property is completed. This includes a title inspection.

A title search is a complicated procedure, involving a thorough examination of records covering all recorded judgments, street and sewer assessments, taxes and anything else related to assuring proper ownership, including chain of title of the property.

Ideally, this is where you will discover if there are any claims on your property. Occasionally, however, clerical errors, misrepresentation from previous owners and Murphy's Law can prevent an owner from knowing about these claims.

So Why Is Title Insurance Needed After a Title Search Has Been Done?

Despite the exhaustive search performed prior to the purchase of property, many things can be missed. Mistakes in public records, pending legal action, unreleased mortgages, unpaid taxes, fraud and misinterpretation, among many other scenarios, can all contribute to problems down the line. Sometimes a deed can surface that predates public record, putting a title in question.

For example, say you are a new homeowner. Without your even having been aware of it, a contractor refurbished the kitchen before you bought the property. Say the previous owner did not pay this contractor. They could have a valid claim on your property and may file a lien on you, the property holder. This is known as a Mechanic's Lien.

This lien may have existed in the public record at the time you bought the property. Nevertheless, a lien holder cannot be denied their interest in the property unless their claim has been settled or released.

A lien holder's claim on a property is considered valid until it has been satisfied. This is true even if the property has been sold. As the new property holder, you are now responsible for this lien.

Before you begin looking through your bank statements to find a spare $20,000 to pay someone you've never met for work you didn't even know was done, take a moment to be grateful that you have owner's title insurance.

Title insurance is designed to protect your rights and the rights to your property. Put simply, title insurance will pay for defending you against any lawsuits attacking your title, and will either clear up title problems for you, or pay you for any losses you may incur.

While purchasing owner's title insurance is not mandatory, it is a very good idea. It is purchased for a one-time premium, ideally at the time you purchase your property.

Keep in mind, you can increase your title insurance coverage when the value of your property goes up. Talk to your escrow or title professional for details.

Since I'm Required to Have Lender's Insurance, Why Do I Need Owner's Title Insurance?

You may be wondering why the title insurance taken out by your mortgage lender (known as ALTA) doesn't cover you. The loan policy protects the lender against the types of losses described above. In short, ALTA insurance protects your lender and an owners' title policy protects you, they buyer.

Title insurance can protect you from many situations. Forged deeds, releases or wills; undisclosed or missing heirs; instruments executed under invalid or expired power of attorney; deeds by persons of unsound mind or minors; fraud; and liens for unpaid estate, inheritance, income or gift taxes; indeed, many unforeseen situations may be thwarted by acquiring title insurance.