​Misconception 1: Owner's Title Insurance is Unnecessary if the Property is Newly Built

Reality: Even with a newly built property, there can be title issues such as unpaid contractors, liens, or disputes over the land the property is built on. Owner's title insurance protects against these potential problems.

Many buyers assume that new construction means a clean title, but this isn’t always the case. The land may have pre-existing issues, or contractors and subcontractors who worked on the property might not have been fully paid, resulting in mechanics' liens. Additionally, there can be errors in the public records or undisclosed easements.

Misconception 2: It's Too Expensive and Not Worth the Cost
Reality: While there is an upfront cost for owner's title insurance, it's a one-time fee that provides protection for as long as the owner or their heirs have an interest in the property. The cost is minimal compared to the potential financial losses from title defects.

 

The cost of owner’s title insurance is typically a small percentage of the property’s purchase price, and it’s a one-time payment that lasts as long as you own the property. Without it, homeowners could face significant legal fees and financial losses if a title issue arises. For example, if a previous owner’s mortgage was not properly discharged, or if there’s a dispute over property boundaries, resolving these issues without insurance can be costly and time-consuming. The protection offered by owner’s title insurance far outweighs its initial cost.

Misconception 3: If There Was a Title Search, There’s No Need for Insurance
Reality: Title searches are thorough but not infallible. Errors or omissions in public records, undisclosed heirs, or forged documents can still cause issues. Owner's title insurance offers protection against these unforeseen problems, ensuring peace of mind.

A title search examines public records to identify any issues with the property’s title, but it cannot uncover every potential problem. Public records may contain errors, such as incorrect indexing or missed filings. Additionally, there might be unknown heirs claiming ownership, forged signatures on documents, or even fraudulent activities that a title search cannot detect.

Misconception 4: A Loan Policy Gives Coverage to the Owner
Reality: A loan policy, also known as a lender's policy, only protects the lender's interests in the property, not the owner's. Owner's title insurance is specifically designed to protect the owner's equity and rights in the property against title defects or claims.

When a mortgage is taken out, the lender typically requires a loan policy to protect their investment in the property. However, this policy does not extend to the homeowner. It only ensures that the lender’s interests are safeguarded if a title issue arises, such as unpaid property taxes or fraud. To protect their own investment, homeowners need an owner’s title insurance policy. This policy covers the homeowner’s financial interest in the property, providing protection against potential claims and legal battles over title defects.

Misconception 5: You Do Not Need Coverage if a Seller Gives a Warranty Deed
Reality: A warranty deed provides some assurances from the seller regarding the property's title, but it does not offer the same level of protection as owner's title insurance. Title issues such as undisclosed heirs or fraudulent claims can arise even with a warranty deed, making owner's title insurance essential for comprehensive protection.

A warranty deed means the seller guarantees they hold clear title to the property and have the right to sell it. However, this guarantee is limited to the seller’s ownership period and may not cover all potential issues. For example, if a previous owner had a lien or if there was a clerical error in past transactions, these issues could still affect the current owner. Owner’s title insurance covers the homeowner for the entire history of the property, not just the time the seller owned it. This ensures comprehensive protection against any claims or defects that might arise, even those predating the seller’s ownership.

I see first hand every day that owner's title insurance isn't just an optional extra—it's a safeguard for any homeowner, whether you're buying an older home or a brand-new construction. Even if that title search comes back clean, there can be hidden issues like undiscovered claims or errors that only surface later on. And while your lender's policy covers their interests, it doesn't protect you, the homeowner, from potential legal battles over your right to the property. Even with a seller's warranty deed in hand, which promises clear title, there's still the possibility of something slipping through the cracks. This is where owner's title insurance steps in, offering that extra layer of security and protection. And the best part? It's a one-time premium that could save you from the high cost of legal fees if any title issues arise down the road. I have people ask how often claims are made on title insurance when they are considering whether to buy it or not and I tell them that although they purchase homeowners or hazard insurance, they aren’t hoping for a flood for fire. Just like any insurance, you hope it is never needed but it's peace of mind, investment is protected.