Lender’s vs. Owner’s Title Insurance: Is Either Necessary?

We talk a great deal about the importance of purchasing title insurance, but can passing over such a policy truly place your client’s property and finances in peril if they fail to purchase? In short? Yes. Absolutely. Without a doubt.

As you likely know, title insurance protects parties on either side of the real estate contract from caustic infractions that can render a title problematic. However, your clients may not be aware that such a policy (or a need for one) even exists – especially first time home buyers. Whether you’ve been in the business for a short time or more years than you care to divulge, maintaining a thorough understanding and healthy respect for title insurance is crucial as you navigate your valued clients through the home buying experience.

Understanding Each Policy Type

First, let’s delve into the difference between a lender’s policy and an owner’s policy. Often referred to as a “Loan Policy,” lender’s insurance covers the financial interests of the lender in accordance with the dollar amount owed on the home loan. In no way does it protect your client’s interests in the property. Even if your client’s lender requires the purchase of a Loan Policy, and they will, your client’s interests in the property still need the protection of an owner’s policy. The owner’s policy covers the amount of the real estate purchase (or up to this amount) in the event the title is deemed unmarketable or defective following closing. Both policy types are vital to their respective parties and necessary to protect against potential financial losses resulting from issues undiscovered during the title search.

Consider the following breakdown of each policy type:

  • Lender’s Policy: Protects the mortgage lender’s financial interests for the remaining dollar amount of the loan.
  • Owner’s Policy: Protects the homeowner’s/buyer’s financial interests up to the amount of the real estate transaction.

Factors With Potential to Affect Title

Even when a title search is performed by the best of the best, certain factors may be overlooked unknowingly or completely undiscoverable at the time. A sample of such factors are included below (for a more comprehensive list, visit our Title Insurance page:

  • Fraudulent actions
  • Forgery
  • Missing or undisclosed heirs to the property
  • Improper delivery of deeds
  • Unpaid property liens, judgments, assessments or taxes
  • Inaccurate or unlawful property descriptions
  • Inaccurate or unlawful execution of documents
  • Conveyance of a property by a person deemed legally incompetent or a minor

Buying Peace of Mind for Both Parties

Essentially, lender’s and owner’s title insurance policies are equally important portions of a title insurance package. Purchasing title insurance incurs a one-time payment, unless the property is ever refinanced (in which case, a new title insurance policy would be necessary). Though ultimately the responsibility of the buyer, the premium for this policy may be negotiated between the buyer and seller prior to closing. In any case, title insurance affords protection of associated assets and ultimately peace of mind for parties on both sides of the transaction.

The more you know, the more your clients trust you. For more information on title insurance, visit our Title Insurance page or contact us at (757) 340-0340 today.

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