Dear Mr. Gisriel:
Please explain why I need to buy owner's title insurance when I close on my home purchase, when there have been only two previous owners of the house since it was built.
Dear Mr. Lewis:
The mortgage lender will require that you purchase lender's title insurance at closing to cover the amount of the mortgage. Lender's title insurance protects only the lender, up to the amount of the mortgage -- which is less than the full purchase price.
It does not protect you -- the purchaser -- against any title defects or claims against the house.
I always recommend that my home-purchasing clients also purchase (for a one-time fee of approximately $150 to $300) an owner's title policy at settlement.
The owner's title policy insures you, the property owner, against any title claims or defects up to the full purchase price of the house. This amount is automatically increased or adjusted for inflation over time.
An extra feature of an owner's title policy is that it also covers the legal costs needed to fight any title claims.
These costs alone can often run to thousands of dollars, even if the title defect claim eventually proves to be without merit.
The one-time premium is paid at settlement at rates set by the state for both owner's and lender's title insurance. (In Maryland, the rate for owner's and lender's title insurance when purchased together is $3.50 per $1,000 of coverage.)
Title insurance will cover you forever against losses from a defect of title.
The title examination will disclose the owner of the property and any recorded liens or exceptions against the title.
Title insurance covers you against any defects in title that are discoverable from a title examination -- that is, a review of the abstract of the original land records. It also covers you against "hidden defects" such as forgeries, missing spouses not joined in the deed, mental incompetents or minors signing deeds, missing heirs and similarity of names.
The only way for a purchaser to protect his investment is to purchase owner's title insurance. The owner's title policy will guarantee forever that the title is free of any defects and from any lien unless specifically set forth in the policy as an exclusion.
Michael Gisriel is senior vice president of Fountainhead Title Group of Columbia and host of the weekly radio show "All About Real Estate" on WCBM from noon to 1 p.m. on Sundays.
Send real estate questions to Michael Gisriel, c/o Mailbag, Real Estate Section, 501 N. Calvert St., Baltimore 21278.
You can also leave questions on Sundial, The Baltimore Sun's telephone information service, by calling (410) 783-1800 and entering the code 6170.
Pub Date: 12/29/96