owner's title insurance is optional in PA

Did you know that owner’s title insurance is optional?

If you’ve been reading this blog for any length of time you know that we do our best to give you an insider’s perspective to the real estate industry and we don’t “upsell.” We give you our honest opinion and answer your questions in an effort to help you make intelligent decisions.

The reality is that there is no law that requires you to purchase an owner’s title insurance policy when you purchase real estate. However, if you’re taking out a mortgage your lender will require you to purchase a lender’s title insurance policy to protect their interests. In this case, the owner’s portion of the title insurance premium is literally pennies on the dollar. We’ll explain that in a minute.

The title insurance industry began to panic when, starting in 2015, the CFPB (Consumer Financial Protection Bureau) required that owner’s title insurance be listed as “optional” on the Borrower’s Closing Disclosure.

There were a couple of reasons for their paranoia which are still in play today.

  1. If the consumer is under the impression that they don’t have any other choice but to purchase an owner’s policy, no one needs to explain what it is or why they need it.
  2. If the consumer starts asking more questions, they might find out that they can shop for title insurance and save themselves some money by doing so.

So, we’ll explain the differences between the lender’s and owner’s policy, give you the benefits of purchasing an owner’s policy and give you an example of how little it actually costs to purchase an owner’s title insurance policy.

Lender Policy vs Owner’s Policy

A Lender’s Title Insurance Policy protects the lender against financial loss if there is ever a dispute that would challenge their lien position, with protection equal to the loan amount.  An Owner’s Title Insurance Policy, with protection equal to the purchase price, protects the buyer against title defects (see list below) created by previous owners of the property.

Benefits of an Owner’s Title Insurance Policy

When you purchase title insurance on a property, a complete search of the public records is completed.

The searcher will go back as far as the public records will take them, in many cases even before a house existed on the land. It’s not uncommon to find references to a horse trail that at one time may have existed on your property, or possibly some other historic use of your land.

The searcher is looking for anything that may have occurred during the chain of ownership that would affect your ability to enjoy free and clear ownership or access to the property. Here are a few examples of title defects that would most likely be covered by owner’s title insurance.

  • Old mortgages that were never fully paid off or satisfied of record
  • Previous foreclosures that might not have been processed correctly
  • Bankruptcy issues
  • Unpaid inheritance taxes
  • Lost heirs that might have a claim to the property
  • Previous tax sales where the property owner never received legal notice of the tax sale
  • Divorce issues where the property was not properly conveyed from one spouse to another
  • Unusual easements that give others access to use your property
  • Unpaid contractors who filed a mechanics lien
  • Unpaid real estate taxes, unpaid municipal liens (water, sewer, gas, trash)
  • Unpaid IRS Liens, unpaid state tax liens, etc.

If and/or when one of these issues pop-up, you’ll be happy that you purchased an owner’s title insurance policy.

Not only does the policy protect you from financial loss, up to the amount that you paid for the property, but it also covers your legal fees to protect and defend your interests in the property and they can add up quickly.

How much does Owner’s Title Insurance cost?

A lot less than you might think!

Unlike most insurance products, there is no monthly or annual premium for title insurance. You pay for it one-time, at settlement when you purchase the property and your owner’s policy coverage protects you as long as you own the property.

When contemplating whether or not to purchase an owner’s policy, consider this:  the bulk of the cost is carried by the lender policy which you’ll be required to purchase either way. Depending on the size of your down payment, the cost of the owner’s policy is negligible.

Here’s a few examples of the Standard policy premiums based on a $300,000 purchase price with various down payment amounts:

0% down3% down10% down20% downAll cash
Lender Policy$2,165$2,113$1,994$1,823$0
Owner's Policy$0$51$171$342$2,165

We get it, when you purchase real estate it seems like there is a fee for everything. Chances are that you found this post while shopping for the best deal on title insurance. There are plenty of ways to negotiate or eliminate unnecessary fees altogether and we’re happy to show you where to look. An Owner’s Title Insurance Policy offers both peace of mind and real value.

As always, if you have any questions about title insurance or just a general real estate question that you’d like a second opinion just text, email, call 215.699.1200 or contact us on Facebook, Twitter or LinkedIn.

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Posted by Frank Dowd,
Founder & Former President of ALT
Real Estate Insider, Blog Contributor
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