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What is the Difference Between an Owner's Policy and a Mortgagee Policy?

When purchasing or acquiring real estate, it is advisable, and often required, to also obtain title insurance. Title insurance protects either the new owner, or the lender, in cases where a dispute arises about who holds legal title to the property. Should it later be proven that the title passed to the owner was invalid, title insurance will cover the cost of the property.

Owner's Policy

These policies are advisable, but typically not required. This policy will protect you, the purchaser of the property, should the title passed to you be invalid, encumbered with a prior debt or lien, or should there be issues that affect the value of the land, such as access to the land. This final situation can occur when one's only method of entering and exiting their land is through the land of another, such as a driveway that crosses another's property.

Mortgagee's Policy

This type of policy protects the lender. Banks will almost always require a home buyer to obtain this type of policy in order to obtain a mortgage, though the cost of the policy might be rolled into payments on one's mortgage. These policies offer the same protections as an owner's policy, such as the protections against invalid title, but cover the bank's interest instead of yours.

For prospective home buyers, it is advisable to obtain both types of policies, especially if there is any possibility of a clouded title. The buyer should check with multiple insurers to see if it is possible to obtain both policies from the same insurer, as this will significantly reduce the insurers' cost to investigate the title history and hopefully reduce the cost of the policy to the homeowner, as well.

Limitations

It is also important to note that these policies are not the same as homeowner's insurance. These policies merely address the possibility of legal disputes regarding one's ownership of the land. They do not protect the homeowner against fires and natural disasters. An additional policy would be required if such protections are desired. 

Next Steps
Contact a qualified real estate attorney to help you
navigate issues relating to home ownership.
(e.g., Chicago, IL or 60611)

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