Legal Definitions - owner's policy

An owner's policy is a type of title insurance policy purchased in real estate transactions. It provides financial protection to the property owner against losses resulting from defects in the property's title that were unknown at the time of purchase. Crucially, it also extends coverage to protect the financial interest of any lender (mortgagee) involved in financing the property. This policy ensures that both the owner's right to the property and the lender's security interest are safeguarded against claims from previous owners, undisclosed heirs, forged documents, or other title issues.

• Example 1: Standard Home Purchase with a Mortgage

  Sarah buys a new house and takes out a mortgage from a bank. As part of the closing process, she purchases an owner's policy. Years later, a distant relative of the previous owner comes forward claiming they have a legitimate ownership stake because their name was mistakenly omitted from an old deed. Sarah's owner's policy would step in to defend her legal right to the property and cover any associated legal costs or financial losses, including protecting the bank's loan against this claim, as the policy covers both her interest and the mortgagee's.

• Example 2: Cash Purchase of a Commercial Property

  A small business owner, David, purchases a commercial building with cash, meaning there is no mortgage lender involved. Even without a lender, David decides to buy an owner's policy to protect his investment. A few months after closing, it's discovered that a previous lien from an unpaid contractor was never properly cleared from the property's title records. David's policy would cover the costs to resolve this lien, ensuring his clear ownership of the commercial building and protecting his investment from this unexpected title defect.

• Example 3: Inherited Property with Undiscovered Easement

  Maria inherits a piece of land from her grandmother and decides to build a small cabin on it. Before construction, she purchases an owner's policy to protect her inherited interest. During the planning phase, a utility company informs her that they have an unrecorded easement across a portion of her land, granting them the right to access and maintain underground pipes. This easement was not disclosed in the public records when Maria inherited the property. Her owner's policy would help her negotiate with the utility company, potentially compensate her for the diminished value of her land due to the easement, or even challenge the validity of the easement, thereby protecting her ownership rights.