Understanding Title Insurance: Why You Need Both Lender’s and Owner’s Policies
What is Title Insurance?
Title insurance protects your ownership of your home by covering claims against your property due to problems in its "chain of title" or the series of historical ownership records for your home. This type of insurance covers issues such as fraud, mis-indexed or defective deeds, undisclosed heirs, forgeries, and unpaid liens threatening your ownership in your home.
Why Do You Need Title Insurance?
If there is a problem with the property’s title, the title insurer will fix it, usually by hiring attorneys on your behalf or by writing a check.
Lender’s Title Insurance: What You Need to Know
Almost all mortgage lenders require borrowers to purchase a lender’s policy when getting a loan. Under this type of policy, if there is a problem with the property’s title, the lender will get a check to cover the loss. Unfortunately, this leaves the owner in the lurch, as the lender is made whole, but the property owner may not own the property they purchased or may have a significant problem to deal with.
Owner’s Title Insurance: Why It’s a Must-Have
Title insurance is relatively inexpensive, considering it covers the entire purchase price of your new home for as long as you own it. Additionally, when you purchase an owner’s policy, you can buy the required lender’s policy at a massive discount since much of the coverage overlaps.
Why You Should Not Rely on Lender’s Title Insurance Only
Some people may question the need for an owner’s title policy since their lender is already getting one, thinking that the title insurer will fix the issue for the lender and that the owner is covered. This is a mistake, as even if the lender gets a check for the remaining loan balance, the owner could be out their down payment, along with the cost of improving the property and accrued equity.
Conclusion
In my experience as a real estate lawyer, I would never purchase a property without getting an owner’s title insurance policy. It is essential to understand that title insurance is not just for the lender, but also for the property owner. Make sure to ask your lender about the availability of owner’s title insurance and the cost, which is relatively inexpensive compared to the potential risks and consequences of not having it.
Frequently Asked Questions
Q: What is the difference between Lender’s and Owner’s Title Insurance?
A: Lender’s title insurance covers the lender’s interests, while owner’s title insurance covers the property owner’s interests.
Q: Why do I need both Lender’s and Owner’s Title Insurance?
A: You need Lender’s title insurance to protect the lender’s interests, and you need Owner’s title insurance to protect your ownership of the property.
Q: How much does Owner’s Title Insurance cost?
A: Owner’s title insurance is relatively inexpensive, considering it covers the entire purchase price of your new home for as long as you own it.
Q: Can I get a discount on Owner’s Title Insurance if I already have Lender’s Title Insurance?
A: Yes, you can buy the required lender’s policy at a massive discount since much of the coverage overlaps with the owner’s policy.
