Owner's title insurance: Protect yourself from costly risks

What you’ll learn ✅

— What an owner’s title insurance policy is and why it matters

— Common issues this insurance covers

— The pros and cons of buying owner’s title insurance

When you buy a home, you’re not just purchasing the physical structure. You’re also acquiring legal ownership of the asset, including its hidden baggage. A thorough title search helps clear the property of legal issues, but if it misses problems like debts and liens, you could be held liable. That’s where owner’s title insurance comes in.

This policy protects you from hidden risks that turn up after closing, offering financial and legal security. In this article, learn what title insurance coverage is, when you might need it, and how it works. 

What’s title insurance in real estate?

Title insurance protects mortgage lenders and property owners in the event of ownership disputes and liabilities that arise after closing. It provides coverage against issues like inaccurate public records, unnamed heirs, and liens from unpaid taxes. 

A real estate title search unusually uncovers these problems by examining property records. But occasionally, a title search misses something, and you and your lender will be on the hook for claims — unless you have title insurance.

There are two main policy types: one for the lender and one for the homeowner. You’re almost always required to get lender’s title insurance for a mortgage, but this only protects the loan provider’s interest in the property and doesn’t cover your equity. Owner’s title insurance safeguards your best interest.

What’s owner title insurance?

An owner’s title insurance policy offers homeowner protection, safeguarding against legal and financial exposure in the event of title defects. Most types of insurance cover issues that might happen in the future — such as auto insurance for collision damage. Title insurance, on the other hand, protects you against problems that existed prior to your purchase.

Say you buy a home and start making mortgage payments on it. Six months later, you find out the previous owner never paid a contractor who remodeled the kitchen several years ago. As the current legal owner, you’re now responsible for the bill because the house was used as collateral for the debt. If you have owner’s title coverage, the insurance provider will step in and pay the contractor, clearing up the issue.

You can think of title insurance coverage like a receipt for a large purchase. You don’t expect any hassles, but if a hidden problem slips through, you have proof to verify your ownership and protect your property.

What does owner's title insurance cover?

Title insurance covers specific risks, which may include defects from fraud, improper recording, and unpaid taxes. Here are a few scenarios that might be covered by an owner’s title insurance policy:

— Undisclosed utility easement: If someone else has legal rights to part of your property (like a utility company), and it wasn’t found during the title search, you might be entitled to compensation for loss of value.

— Misfiled deed: If there’s a mistake on the deed, such as an incorrect legal name, there might be confusion about ownership. An insurance policy may cover the legal costs to correct the error.

— Forgery in the chain of title: A past deed signed by an imposter or under a falsified name can lead to legal disputes. For example, it could affect your ownership if the previous owner didn’t have the right to sell the property. Title insurance helps you keep your home or receive compensation.

— Heir ownership dispute: With title insurance, your financial interest will likely be protected if an unknown heir attempts to claim the property years later.

— Unpaid property taxes or liens: Title insurance often covers old debts that emerge after closing, such as unpaid property taxes or homeowners association fees.

Pros and cons of owner's title insurance

Buying title insurance protects your real estate investment from hidden risks, but it isn’t usually required, and some buyers may choose to skip it over. Let’s take a look at the major pros and cons of owner’s title insurance.

Pros of the owner's title insurance policy

Here are a few good reasons to secure owner’s title insurance:

— Financial coverage for legal services: Policies usually cover the cost of legal defense for title issues.

— Protection for past-owner issues: Owner’s title insurance safeguards against hidden problems in the property’s history, which might include recording errors, liens, and document forgeries from decades ago.

— Long-term title security: Policies generally provide coverage for as long as you or your heirs own the property.

Title insurance brings peace of mind during a hectic homebuying journey, and when you work with Better, it’s easy to secure, too. Better streamlines the process by letting you add title insurance to your loan estimate. Get transparent rates, and compare options online with Better Settlement Services.

...in as little as 3 minutes – no credit impact

Cons of the owner's title insurance policy

Here are a couple of possible drawbacks of buying title insurance:

— Up-front premium: Although it’s a one-time fee, the cost of title insurance may feel significant when you’re already managing closing costs.

— Costs in short-term ownership situations: If you plan to sell quickly, it may feel unnecessary to buy owner’s title insurance to cover you for a short time.

Is owner's title insurance worth it?

Whether it’s worth it depends on your personal risk tolerance. Professional property title searches are thorough, but they’re not perfect. Defects can slip through the cracks, especially if they don’t appear in public records. For example, if someone forged a signature on a deed 20 years ago and was never caught, it may not come up during a title search but could still affect you down the line. 

It also depends on your finances, but for many buyers, the one-time closing cost is a sensible hedge against unlikely yet potentially damaging financial risk.

Protect your investment and get Better home financing

Hidden ownership risks can threaten your finances, but title insurance provides a reliable safety net that lets you breathe easy. This one-time cost can save your investment and give you day-to-day confidence. If you’re looking for a simple way to compare rates and find the perfect policy, partner with Better.

Our fully digital platform lets you secure insurance and a favorable loan in one place. Upload documents, get pre-approved in as little as three minutes, and track your progress from an online dashboard. Enjoy transparent policy rates and quick turnaround — our lightning-fast process makes it easy to close on time.

Manage your homebuying journey effortlessly with Better.

...in as little as 3 minutes – no credit impact

FAQ

What’s the title settlement fee, and why do homebuyers pay it?

The title settlement fee is an administrative charge that buyers pay to the title company or settlement agent for coordinating the closing. It’s separate from the title insurance premium. Buyers usually pay this cost, although customs can vary by location and provider.

What are the alternatives to title insurance, and what risks do they carry?

A warranty of title — a signed personal guarantee from the seller that the title is clear — can act as an alternative to owner’s title insurance. But lenders still typically require regular title insurance. Occasionally, a mortgage provider may accept an Attorney Opinion Letter in lieu of title insurance. This document provides a lawyer’s opinion based on a record review, but it doesn’t cover defects that don’t appear in public records.

Who usually pays for the title insurance at closing?

The buyer almost always pays for the lender’s policy, which protects the mortgage company’s interest in the loan. Payment for the owner’s policy isn’t as clear cut. Usually buyers pay, but sellers may also cover the premium depending on location or negotiations.

Do I really need owner’s title insurance?

No, you don’t need owner’s title insurance. While lenders almost always require lender’s title insurance, you can choose whether or not to buy owner’s coverage.