A Guide to Owner’s Title Insurance Policies & Lender’s Title Insurance Policies
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What Are Title Insurance Policies?
Author: Stan Faulkner, Founder, Perigon Legal Services, LLC
Mr. Faulkner is an experienced counselor and litigator with 15 years of experience, having held bar licenses in four states (Mo, Il, Ct and Ga). Stan Faulkner uses this experience and focuses his skills in the pursuit of assisting individuals in probate (trust and estate) matters, guardianships and conservatorships, estate planning, business disputes and contract disputes. Published on November 11, 2022.
“Title” refers to the legal possession or ownership of real estate. However, because real estate is imperishable, there’s usually a long list of title holders and title transfers before the property gets to the present owner. Along the way, there could be defective transfers of title, unpaid liens, or other third-party claims that could diminish the value of the title.
The good news is that a routine title search would reveal most of these title defects, so the new owner or lender is aware of them.
But beyond being aware, there is a need for an added layer of protection for the party with the most to lose if the title is proven defective.
This is where insurance policies come in. So, if you’re the lender or purchaser in a real estate transaction or mortgage, it is important that you understand the title insurance policy applicable to you and the extent of protection you can get.
What Is Owner’s Title Insurance?
Owner’s title insurance policies protect you as a property owner from financial loss caused by defects in the title to your property.
For a one-time premium, the owner’s policy covers your attorney fees and court costs if you have to defend yourself against a competing claim to your title. The policy will also protect you from legal action by the state for unpaid property taxes by the previous owner.
The property could also be subject to certain restrictions, reservations, and encumbrances, such as an easement that affects how the land is used physically, a lien (such as a mortgage or tax debt), or construction limitations, all of which title insurance can cover.
All these defects and limitations are usually discoverable from title searches. So it is crucial to do your due diligence before you purchase any real estate.
What Is Lender’s Title Insurance?
The lender’s title insurance policy protects the lender in a loan or mortgage transaction from issues with the (collateral) property’s title, such as those caused by parties with competing legal claims against the property, or other issues, such as unpaid tax liens, boundary disputes, and lawsuits.
While the lender’s policy is not a legal requirement, loan companies typically will not grant a loan facility without a suitable insurance policy to protect their interest in the property.
Differences Between Lenders’ and Owners’ Title Insurance
Owner’s title insurance and lender’s title insurance share many similarities. For instance, the extent of coverage granted by each is often identical. They both cover unpaid liens, fiscal encumbrances, security interests over property, and third-party ownership claims over the property that may arise after the title search.
The major difference between the two forms of title insurance lies in their purpose. Lender’s title insurance protects the lender in a mortgage or loan transaction from claims against the property’s title after a loan. In contrast, owner’s title insurance operates during an outright sale and transfer of ownership.
Another critical distinction between both concepts lies in the duration of each. Owner’s title insurance lasts for as long as the specific homeowner or their heirs own the property. If the property is transferred or sold, the new owner would need to negotiate their own title insurance.
Lender’s title insurance, on the other hand, lasts until the loan is paid off. At that point, the lender’s interest in the property is extinguished.
Who Pays for Title Insurance Policies?
Title insurance policies protect the party that has the most to lose if there is a defect in the title- lenders and owners.
The borrower usually pays for the title insurance premium for the lender’s title insurance since it is required for the grant of loan facilities.
On the other hand, the seller or buyer in a real estate sale may be responsible for title insurance costs depending on who pays for the transaction closing costs. If you intend to purchase real property, you can make sure that the seller provides title insurance during your negotiations.
How an Attorney Can Help
A real estate purchase is a significant investment, likely the largest you will make in your lifetime, and it is important to protect yourself against loss or liability. Thus, it is important to work with an attorney throughout the sale or mortgage transaction to be sure that your interests are adequately protected.
Before you part with any amount of money, your attorney can conduct a title search on your behalf to reveal any defects in the title. The title search results would determine whether you should proceed with the transaction and the extent of title insurance coverage needed.
Your attorney can also help you select your title insurer or title company. There are many title companies available to choose from. Your attorney can help you choose one whose policies offer a broad level of protection to favor you.
Your closing attorney can also help you ensure that the transaction is completed legally and successfully. They can prepare or review the title documents on your behalf and ensure that the terms of the title deed protect you adequately.
If the transaction leads to any dispute, your attorney can work to resolve the dispute and represent you in court if necessary.
There’s so much that an attorney can do for you in a real estate transaction. In your interests, consider consulting one for help with your mortgage or sale.
Get Help From With Your Title Insurance and Real Estate Transaction at Perigon Legal Services
At the Perigon Legal Services, we understand that real estate transactions involve a lot of your resources. Our goal is to ensure that your resources are not wasted and you can get value for your money.
We can help you protect your interests legally throughout the transaction and ensure that your title insurance and legal ownership transfer documentation are in order.
Contact Perigon Legal Services today for quality representation in your real estate transaction. We’d be glad to help you.
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