At Sherman & Phalen, when we do closings, we offer an optional owner’s title insurance to help you minimize risk and offers you protection from certain unforeseen issues.
What Is Owner’s Title Insurance?
Real estate transactions in Georgia typically involve two types of title insurance: lender’s title insurance and owner’s title insurance. Lender’s title insurance protects the mortgage lender’s financial interest (i.e., the loan amount), and it’s often required by mortgage companies to safeguard their investment.
In contrast, owner’s title insurance is optional, and it is designed to protect the financial interests of the buyer. The primary purpose of owner’s title insurance is “protection against loss arising from problems connected to the title of your property.” When you purchase an owner’s title insurance policy by paying a one-time premium during the closing process. There’s a standard owner’s policy that protects you up to the amount of your purchase price; and there’s a homeowner’s (or enhanced) policy for some properties and the amount of that coverage slightly increases for the first few years of the policy. Both types last as long as you or your beneficiaries own the property.
Why Even a Clear Title Search Isn’t Foolproof
Even if a title search doesn’t turn up any red flags, there could still be hidden issues that may crop up after closing. There are limits to what a title search can detect, and real estate title problems like forged documents, undisclosed heirs, clerical or recording errors, and fraud that has not yet been discovered may not be uncovered by a title search. Unfortunately, these issues may only come to light after closing and have the potential to be financially devastating if you don’t have owner’s title insurance. As our attorney William Phalen says at the closing table when asked about owner’s title insurance, “Even though I run title myself, I still purchase owner’s title insurance on any property I buy to protect against the possibility of fraud, forgery, undisclosed heirs, and boundary disputes, among other things.”
Real-World Example: When a Forged Deed Voids Ownership
One of our clients experienced a concerning title issue after closing on a real estate property. The title appeared legitimate and a professional title search turned up no red flags or other issues. After the closing, however, a forgery claim arose from the property’s true owner. Under Georgia law, a forged deed is considered a “nullity,” which means that no title is conveyed, even to innocent purchasers who had no knowledge of the fraud. Fortunately, the buyer had purchased owner’s title insurance and their policy covered their financial losses.
What Owner’s Title Insurance Covers
When a buyer decides to purchase owner’s title insurance, they can expect their policy to cover a range of potential issues that may arise after the transaction closes. Generally speaking, standard owner’s title insurance policies protect against title defects that occurred before the purchase, including undiscovered liens, mistakes in public records, and title ownership discrepancies. If you are interested in more comprehensive coverage, you may opt for an enhanced policy that includes all of the protections offered by a standard policy as well as other protections for a wider range of risks (i.e., zoning and building permit violations, unrecorded liens and easements, automatic increase in the amount of insurance in the first five years, boundary disputes, and adverse possession claims). And, perhaps most beneficial with the rise of real estate fraud, is that you would be covered in the event of prospective forgery or impersonation, even after the date of your policy.
What Happens If You Do Not Have Owner’s Title Insurance?
Buyers who don’t purchase an owner’s title insurance policy can face financial and legal exposure in the event of a title issue or dispute. Depending on the specifics of the title issue, you may lose the property because of an invalid title or be required to pay attorney’s fees for litigation to defend your ownership rights. You could also struggle with the inability to resell the property because of these title issues.
Do I Need Owner’s Title Insurance in Georgia?
So is owner’s title insurance worth it? When you weigh the one-time cost of buying coverage against the potential losses (total property value, legal fees, inability to resell the property), it’s usually worth investing in an owner’s title insurance policy. Not to mention your peace of mind knowing that your financial interests will be protected in the face of unexpected title issues.
When you close with us, we’ll answer these questions and more. Let us know how we can help. Give us a call today.