Owner's Title Insurance
One of the significant expenses incurred as part of closing costs is Lender's Title Insurance. This insurance protects the lender against undisclosed problems with the title to the property. The lender requires that the Buyer purchase this insurance to protect the lender against such loss. At closing, the agent for the lender will offer Owner's Title Insurance, a similar product, that will protect the Buyer's investment in their new home. This insurance is optional and there is no requirement to purchase Owner's Title Insurance. The agreement as to who covers the costs for title insurances are agreed upon in the Contract for Purchase; it can either be paid by the Buyer, the Seller or divided.
About now you are probably asking yourself "Why am I paying for title insurance after I have already paid the closing agent to perform a title search?" I agree that it sounds a little redundant, but the agent's title search can only trace the chain of title and search for properly recorded liens. The agent searching the title has no way to know if any signatures have been forged or if there are any outstanding liens that have been incorrectly recorded. Title insurance provides protection in case any such flaws in the title are found later.
For example, Farmer and Mrs. Jones purchased a 100 acre farm in 1920. They were subsequently divorced and Farmer Jones remarried. In 1940, he and the second Mrs. Jones sold the property and moved away. The property is sold and resold many times over the years and has now been subdivided and developed into a community of beautiful homes. After all these years the descendants of Farmer Jones' first wife recall the existence of the family farm and that the first Mrs. Jones had an interest in it. Their investigation reveals that the second Mrs. Jones had forged the first Mrs. Jones signature on the deed. The heirs are successful in proving their ownership of the property and are able to reclaim the land. The owners of the homes on the land who had both owner's and lender's title insurance were defended by the title insurance company's lawyers, and even though they lost, the title insurance company reimbursed them and their lender for this loss. The owners that had only lender's title insurance lost the equity they had in the property and had to pay private lawyers to defend their case. The owners that had no title insurance whatsoever lost their equity and also had to pay private lawyers to defend their case. Even worse, they still owed the mortgage company the amount of the outstanding balance of the loan even though they no longer owned the home.
The example above is an extreme case, but it points out the value of title insurance. The premium is paid one time only and is usually a nominal amount based on the amount of equity being insured. This is a small amount to pay for a great deal of peace-of-mind. I strongly recommend the purchase of this insurance.
