by Tinisha M. St. Brice

Before I became a real estate lawyer, my husband and I purchased our first home.  The day before the closing we were contacted by a paralegal from our lawyer’s office.  She called to inform us of how much money we had to bring to the closing the following day and to ask us if we were interested in purchasing an Owner’s Title Insurance Policy. 

We had no idea what Owner’s Title Insurance was (they don’t teach that in law school). I can’t recall what her definition of title insurance was, but apparently it was not convincing enough to make us want to purchase it. What we did know about Owner’s Title Insurance was that it was optional and if we opted to get it we would have to bring additional money to the closing.  Those of you who have purchased a home with limited funds can appreciate the reality that $50 is too much when you have already tapped into all the funds saved for the down payment on your home.  Needless to say, both my husband and I agreed that we had no need for an Owner’s Title Insurance Policy.

The following day at the closing table, our lawyer once again offered us an Owner’s Title Insurance Policy and once again we declined.  However, he began to explain that because unknown problems can be hidden in the history of a property’s title, our lender required us to purchase Mortgagee Title Insurance which protects its interest in the property against any liens or title defects that may not have been discovered by the title searcher before the closing.

He further explained that Owner's Title Insurance is an insurance policy that guarantees the property is free from problems such as hidden liens and claims, including work performed by any contractors prior to your purchase.  Mortgagee Title Insurance covers the lender up to the mortgage amount.  However, Owner's Title Insurance covers the entire value of your property as opposed to just the value of the loan.  Owner's Title Insurance specifically insures that:

• You are the true legal owner of the property 
• There are no defects, liens or encumbrances other than those discovered during the title search 
• If your title is challenged legally all costs and expenses to defend you will be covered by the title insurance company 
• The dollar amount of your coverage will automatically increase 10% each year for the first five years at no additional cost to you.

Before a title insurance policy can be issued, there must be a careful examination of the title to the property by a qualified title searcher or sometimes an attorney.  Even after carefully searching the title, sometimes some risks still remain.  Examples of these risks, which are covered by an Owner’s Title Insurance Policy include:

• Lost or forged deeds 
• Undisclosed heirs 
• Deeds executed by incompetents 
• Unfiled Mechanics’ Liens 
• Incorrectly indexed deeds
• Deeds by minors

We learned that Owner's Title Insurance protects us from these risks while we own the property and for as long as we might be liable to any future owner.  However, our Owner's Title Insurance Policy is not transferable to any future owners, they must purchase their own title insurance policy. 

Finally, imagine this, one year after closing on your home, you are all moved in.  Things are going well and you have settled in nicely.  One day you get a call from your mortgage broker informing you that interest rates have dropped since you purchased your home and you could lower your monthly mortgage payments if you refinance.  You agree that you would benefit from refinancing and go through all of the steps to do so. 

Then a few days before the closing you are contacted by your lawyer’s office and told that there is a Mechanics’ Lien on your property for a fairly large amount.  (You know that new roof that made your house look even more appealing to you? Well, it wasn’t paid for.)  The contractor your sellers hired to replace the roof was not paid in full, so he placed a Mechanics’ Lien on the property.  Since the town clerk’s office indexed the paperwork incorrectly, the lien was not discovered by the title searcher before your closing. You find yourself in the position of having to defend your claim as clear holder of the title to your house and land. 

Unfortunately, at the time of the closing you purchased a Mortgagee Title Insurance Policy to protect the lender, but decided that the one-time up-front payment for an Owner's Title Insurance Policy to protect your interest in the property was just too much and you declined to purchase it.  At this point your only choice may be to pay the amount of the lien to secure your interest in title, and attempt to be reimbursed by the sellers. 

If you had just paid the additional money at the closing (title policy premiums are determined by the purchase price of the property ) you would be covered against the legal and financial consequences resulting from a claim like that in the scenario above, as well as other claims that jeopardize your ownership of the property. 

After thoroughly questioning our lawyer about Owner's Title Insurance and learning that an Owner's Title Insurance Policy provides us protection against financial loss that could result from defects in the title to our home or errors made in searching the title, we decided to spend the extra $50 at the closing. The knowledge that we are secure in ownership of our home was well worth the expense.

Before purchasing your home, I recommend that you learn more about title insurance to decide whether or not to purchase owner's coverage.  If you have not already done so, you should consult an attorney of your choice to help make the decision.

Tinisha M. St. Brice is an attorney and the owner of Tinisha M. St. Brice & Associates in West Hartford, CT.  She can be reached at 860-523-4560 or by email at tms@stbricelaw.com