When an owner's policy is to be issued, not in contemplation of a sale of the land, but for the purpose of insuring the title of its present owner, this type of insurance is referred to as insuring an "owner in possession."
The insurance of an "owner in possession" presents additional risks for the title insurer because:
- The insured is not a bona fide purchaser.
- The Company cannot rely on the Recording Act doctrine.
- In many instances insurance is sought by the owner after learning of a problem or defect not disclosed by the records.
- Reliance by the title insurers on the exclusion from coverage based on "matters known by the insured and not disclosed to the Company" has proved to be extremely expensive to title insurers.
Insuring An Owner In Possession
Before attempting to insure an "owner in possession" extreme consideration must be given to the following matters:
- How long ago did the present owner acquire the property?
- Why is the present owner requesting title insurance at the present time?
- Has the present owner learned of any unrecorded claim or defect that affects the title to the property?
- Has an accurate chain of title been properly examined?
- Did said examination reveal anything abnormal, uncommon or extraordinary?
- The consequence, if any, of the proposed insured not being a bona fide purchaser.
- Whether the property or any part thereof is occupied by someone other than the record owner.
- Whether there is any boundary line dispute affecting the property.
Note: When insuring an owner in possession, no extended coverage should be granted.