As an investor, you are purchasing homes to fix and resell, holding some homes for rental purposes, and as a residence for yourself and your family. When you purchase these homes, regardless of the reason, you will also need to purchase title insurance. Knowing which type of policy to purchase and the coverage it provides is important. There are a couple of different options in policy types: Standard Owner’s Policy, Extended Owner’s Policy, Residential Owner’s Policy, and a Homeowner’s Policy. As an investor, knowing the difference in these types of policies can help you understand the coverage you have if you should ever need to file a policy claim against your owner’s policy.
Standard Owner’s Policy.
A standard owner’s policy is the most basic of policies. These policies provide coverage against standard items like someone else claiming to have a recorded interest in your property, documents not correctly signed and/or notarized, forgery, incorrect recording of a document, inability to convey the property to a new owner due to an outstanding mortgage, or lack of access to a piece of land. This is just the basic of coverage and is typically purchased if you are going to fix up the property and resell it at a later time.
Extended Owner’s Policy.
An extended owner’s policy is a step up from the standard policy. It covers the same as a standard policy plus provides protection against mechanic liens (a lien filed when someone has done work on your property and does not properly receive compensation), unrecorded liens by homeowner’s associations, renters having rights to property due to a lease, an option, or other type of contract, and someone having an easement on your land. This coverage does require the purchaser to pay for a survey of the property. Sometimes LLCs and Corporations purchase these type policies when they are going to use the property for business purposes. They want to make sure the property they are purchasing and the business that will eventually be on the property are properly protected.
Residential Owner’s Policy.
A residential owner’s policy, in addition to the above two coverages, also provides protection against forced removal of a structure if it extends on to someone else’s land or on to an easement, violates existing zoning laws, or violates restrictions shown in the exception section of the title policy. This type of policy is typically purchased for those who are planning to hold the property and use it for rental purposes.
This type of policy offers the most coverage. However, in order to purchase this type of coverage, you must be occupying the property as a primary or secondary place of residence and you cannot have title issued in the name of a LLC, Corporation, or Partnership. The title company may even ask you to sign an affidavit of occupancy to affirm the property will be used for such purposes. In addition to the above coverage, the homeowner’s policy protects against building and zoning violations by previous owners, map inconsistency coverage, living trust coverage, and taxes not previously assessed prior to the policy date.
Having the correct policy coverage is important if you should ever have to file a claim against your owner’s policy. Knowing what each policy covers and doesn’t cover based on your ultimate use of the property is just as important. Ask questions of your title partner, understand the coverage you need and why. This is another way to protect your investment and your business.
As the largest title company in the nation and a Fortune 300 company, Chicago Title is committed to protecting you and providing resources to do just that. Please don’t hesitate to contact us with any questions you have!
Article written by: Dawn Blanton, Escrow Officer