Understanding Owner's Title Insurance in Real Estate Transactions

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Typically, when navigating a real estate transaction, one of the costs our clients encounter is owner's title insurance. Whether you're on the buying end or the selling end, this question often arises: "Why do I need owner's title insurance, especially if I'm purchasing the house with cash or if I'm financing it?" The reason is straightforward – it's all about protection. Real estate transactions come with various risks, and our primary objective is to safeguard our clients against these uncertainties.
Owner's Title Insurance: Why It's Important and What Issues It Addresses
Owner's title insurance is a policy crafted to defend property owners from potential title defects or disputes that might emerge after purchasing a property. Different from a lender's title insurance which only covers the lender's financial interests, owner's title insurance offers direct protection to the owner. Here's why securing it is a strategic move:
  1. Protection Against Hidden Risks: This insurance protects against unexpected defects in your property's title. Such defects can be:
    • Errors in public records: Misfilings or omissions of deeds.
    • Undisclosed heirs: Claims of rightful ownership due to inheritance.
    • Omissions in deeds: Missing clauses or rights, like water rights. For instance, in areas where water is scarce, rights to access water become pivotal. Without clear title rights, you might be left without legal access to crucial water sources.
    • Fraud: Cases where properties were sold under deceitful means or with forged deeds.
    • Mistakes in examining records: Previous overlooks of liens or claims during title searches.
  2. One-time Fee: Purchased typically at closing, this one-time fee provides protection as long as you or your heirs maintain an interest in the property.
  3. Legal Defense: Should a title dispute surface, the insurance company shoulders the responsibility and cost of legal defense against title challenges.
  4. Coverage of Claims: If a title dispute results in a financial loss, the policy will cover it up to its amount, often mirroring the property's purchase price.
  5. Peace of Mind: Property often symbolizes a significant investment. With title insurance, rest assured that your property ownership stands protected against unforeseen title issues and legal confrontations.
  6. Protection Against Past Occurrences: Differing from most insurances that focus on future events, title insurance predominantly offers protection against past overlooked incidents during the sale.
Given the complexities surrounding property rights, water rights, and the potential hidden issues in a title's lineage, owner's title insurance is an essential shield for homeowners. When venturing into a property purchase, always consult with a real estate attorney or professional to gauge the specific risks and advantages relevant to your situation.

About the Author
Dar Mardan, a seasoned realtor at Pacific Sotheby's International Realty, is your guide to all things real estate in sunny Orange County. With an emphasis on informed decisions and an array of knowledge spanning real estate, tax strategies, trusts, and more. Dar, alongside his talented wife, Vida, offers a comprehensive, personalized approach to serve clients' real estate needs.

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