Posted by BetsyMI on 10/16/07 10:32am
Msg #216646

Two kinds of Title Insurance

There was an article in my Sunday paper about Title Insurance. The writer said that consumers don't fully understand how title insurance works.

He said "Title Insurance essentially protects the policyholder from a loss sustained by a defect in title. There are two types of title insurance policies. The first, called lender's title insurance, protects the bank against any future claims regarding ownership in the property. Virtually every lender requires borrowers to pay the $600 or so for such coverage, even though the policy will reimburse only the bank, not the consumer, for losses if a claim is made months or years later."

It goes on to say "if you want the same type of protection for yourself, you'll need to pay an additional $500 or so one-time fee for a separate owner's title insurance policy that can reimburse YOU for your personal financial losses (and usually your legal fees) if a future title claim proves successful."

"Though most banks require borrowers to pay for lender's title insurance before a home loan is granted, purchasing a separate owner's policy usually is an option that the borrower can either accept or reject".

.....Maybe it's my ignorance, but I had no idea that the Title Insurance was to protect the lender and not the consumer. Did any of you? And I've never heard of any mortgage company or lender discussing an optional title insurance policy for the borrower, so is this something the borrower needs to ask their LO about, or does the borrower have to get that title insurance on their own somewhere else?

Would love to hear comments from those who are knowledgeable about this.

Thanks!

Reply by Phillip/TX on 10/16/07 10:38am
Msg #216650

You can usually get the seller to buy the owners policy.... as part of the closing. It is not really needed if it is a refi, as there should have been one that will still be in force from the purchase.

Reply by Kevin/Ct on 10/16/07 12:16pm
Msg #216671

I think you might mean that the buyer would purchase the homeowner's policy...since the seller would no longer have an insurable interest in the property.

Reply by Phillip/TX on 10/16/07 12:24pm
Msg #216674

No I mean that the seller will normally pay for the buyer's policy, the fact that they have no insurable interest does not come into play. The policy is for the BUYER, but the SELLER pays for it.

Reply by Kevin/Ct on 10/16/07 12:30pm
Msg #216680

That is interesting. Totally the opposite in Connecticut. Thank you for the information.

Reply by BrendaTx on 10/16/07 12:58pm
Msg #216701

Here's the way I understand it, Betsy.

The price of the title policy is a negotiable closing cost as far as who pays it. (The fee for it is set by the State of Texas and it is based on the amount of the loan, or purchase price depending on the situation.)

However, here in Texas, the seller usually assumes that cost to insure to buyer and/or lender that the title is clear. If there is no lender involved, the Owner's Title Policy is issued. If there is no lender and there is no owner's title policy but just a do it yourself deed, it's like buying a pig in a poke where you have no idea whether or not there are encumbrances you are aware of. (That's for those who don't understand the purpose of the title policy insurance...not necessarily for people who are in this thread.)

If there is a lender involved, then the lender's policy is issued at seller's expense, generally. If the owner wants one of their own, they usually pay a hundred in addition to the lender's policy cost (usually paid by the seller) at closing. If they don't want one there's often a document to sign saying they know they aren't getting one of their own and only a lender's policy has been issued.

If it is a refinance or rearrangement of loan terms, many times an update or "nothing further" certificate will be issued indicating that since the the time the existing title policy was issued there has been no encumbrances on the property.

Okay, that's it in a nutshell about what I think I know. I miss TitleGal. She was so good at this stuff.

Reply by PAW on 10/16/07 1:45pm
Msg #216721

In Florida, the SELLER typically purchases a title policy for the buyer. The BUYER purchases a title policy for the lender if there is any financing. I have not seen at purchases where the seller purchased a title policy for the lender, only for the buyer. It has always been the buyer/borrower who purchases the lender's policy.

Whether or not the buyer has a title policy, and who is to pay for it, is negotiated as part of the P&S Agreement. Almost every purchase that I have done, the seller has paid for the buyer's policy.

With a lender's policy, the borrower will just about always end up paying for it, usually as a direct cost as shown on the HUD.

The price of the policy is not negotiable. However, different insurance companies may offer different prices, as long as the policy and pricing are within the guidelines set by the state.

Reply by Phillip/TX on 10/16/07 12:26pm
Msg #216676

We are talking TITLE POLICIES not HOMEOWNERS POLICIES n/m

Reply by Kevin/Ct on 10/16/07 12:32pm
Msg #216682

Re: We are talking TITLE POLICIES not HOMEOWNERS POLICIES

I understand that. There is hazard insurance and title insurance. Both are homeowner's policies but cover different liabilities....unless the law differs in Texas.

Reply by Phillip/TX on 10/16/07 12:35pm
Msg #216686

Re: We are talking TITLE POLICIES not HOMEOWNERS POLICIES

But in your originally reply you stated that the buyer would purchase the HOMEOWNERS policy. We are not talking homeowners, we are talking title, the seller pays for the OWNERS TITLE policy, this is in good faith that they know of no irregularities in the title. It is very rare for a buyer to ever have to purchase the owners policy in Texas, Oklahoma, Arkansas or Louisiana. These are just the states that I deal with.

Reply by Kevin/Ct on 10/16/07 12:42pm
Msg #216691

Re: We are talking TITLE POLICIES not HOMEOWNERS POLICIES

That may well be the practice in your area...not in Connecticut. The buyer protects himself here. The seller does not pay for the buyer's policy. In this area the policy purchased by the buyer is known as the homeowner's policy as opposed to the lender's policy. It insures marketable title.

The mortgagee is also going to require the buyer to carry hazard insurance for casualty. This is also known as a homeowner's policy. It covers destruction to the premises not marketability of title.

Reply by Lee/AR on 10/16/07 1:37pm
Msg #216718

Varies by local (state?) customs

In AR & MO, buyer & seller split the cost of the Title Policy. In WI, Buyer pays for it. At least, that has been my experience over the last 25 years.

Reply by Charles_Ca on 10/16/07 10:44am
Msg #216651

Yes and No, title insurance is there to protect the title

and that is important for both the lender and the owner. I recommend getting the extended title insurance if you can because it protects against title defects that the basic won't and in my opinion for the extra few dollars its more than worth it. Some of the defects that are protected are such things as encroachments, survey errors, description defects, rights of way, many of these things are items that may not be readily discovered by casual observation during the due diligence phase of a sale but amy raise their ugly heads later in the ownership period. It used to be that you couldn't get the extended, only lenders could, of course the borrower still paid for it. Here in California they are usually refered to as the ALTA (American Land Title Association) and the CLTA (California Land Title Association) policies.

Reply by Pat/IL on 10/16/07 11:30am
Msg #216659

Re: Two Kinds of Title Insurance

Most owners policies are purchased in conjunction with the purchase of the home. The policy is active as long as the purchaser owns the home, thus no need to buy another one when refinancing.

In Illinois, tradition has the seller paying for the owners policy for the benefit of the buyer. The buyer pays for the loan policy, if applicable. The ALTA policy is the only recognized title insurance policy in Illinois. It is intended to insure "marketable title", free of defects suffered by past owners.

Reply by Sylvia_FL on 10/16/07 11:20am
Msg #216657

I have seen lots of loan packages with a document in it that the borrowers signs to say they understand that the title insurance protects the policy holder and not the borrowers. Often there is a box to check if they want to purchase their own title insurance

Reply by Rachel/ORWA on 10/16/07 12:24pm
Msg #216675

I think it's a little deceptive to have this option- sometimes as a completely seperate document- in a refi package. An unknowledgable homeowner might purchase an unnecessary insurance policy (usually from an "affiliated" company), not realizing previously purchased insurance is still effective. What do you think?

Reply by Teresa/FL on 10/16/07 12:33pm
Msg #216684

I always suggest the borrower contact the Title Company

if they have questions about this. I do let them know that if an owner's policy was issued when they purchased the property, they are still protected under that policy, but only up to the amount it was written for (the purchase price).

The Title Company can explain their options and give them the cost for the policy.

Reply by Phillip/TX on 10/16/07 12:36pm
Msg #216687

Re: I always suggest the borrower contact the Title Company

That is what I have done in the past too Teresa....

Reply by Teresa/FL on 10/16/07 12:19pm
Msg #216672

In a purchase it is customary for both an owner's and lender's policy to be issued, although the buyer may waive the issuance of an owner's policy. When both policies are issued at the same time (a simultaneous issue), there is a discount given for the second policy.

The lender's policy is written to cover the loan amount while the owner's policy covers the purchase price of the property. In Florida, most purchase contracts are written to show the seller paying for the owner's title policy and the buyer pays for the lender's policy. In the case of a new home purchase (from a builder), the buyer usually pays all closing costs, including the cost for both title policies. Of course, quite a few builders these days are offering incentives such as all closing costs paid, so in this case the builder is paying for the policies.


In a refinance transaction, it is rare for a new owner's policy to be issued, however all lenders require a new lender's policy to protect their interests. When the owner can provide a copy of their existing owner's title policy to the title company, it is possible to receive a discount on the newly issued lender's policy (a Butler rebate). If there is no change in ownership, as is the case in most refis, a new owner's policy is not needed. There may be some benefit in obtaining a new owner's policy if someone is being added or removed from title. A new policy would also be written to the current loan amount or possibly the current appraised value of the property.

I am not a title agent, so this is just what I have learned over the past few years as a signing agent. I have never had an owner who is refinancing their home elect to purchase a new owner's policy.

Reply by SharonMN on 10/16/07 12:50pm
Msg #216696

Here's a little more explanation.

Title insurance covers any title defects, such as if the current or a previous seller didn't actually have the right to transfer the property. I think it may also covers survey errors, such as if you discover your garage is actually on your neighbor's property.

The lender's policy covers the lender. It protects them in case it turns out you've borrowed money against a property you don't have clear title to.

You can also buy an owner's policy to cover you. Think about it - you may have car insurance or warranty coverage on your fridge, but one of the worst things that could ever happen to you financially would be for you to find out that your home actually belongs to the railroad or something. This is especially a good idea if you put a large down payment on the property or plan to do a lot of renovation or build a new house on the property.

In some cases the buyer has to pay for the owner's policy themselves - in some cases, you can get the seller to agree to pay - the logic being that they should stand behind their claim that they have clear and transferable title.

Whenever buying insurance, it's a good idea to get and read the actual policy you are buying rather than just checking some box on a form. That way you can see who/what is covered. In fact, if you buy owner's insurance, at least make sure somebody sends you the policy after closing because lots of times they forget, and then you have no documentation should you ever need to make a claim.

Reply by Teresa/FL on 10/16/07 12:55pm
Msg #216699

Good point, SharonMN

If you don't have the actual policy, you have no proof of coverage.

The owner's policy can save you a lot of money on your new lender's policy when you refinance. In fact, the savings is usually more the the original cost of the policy.

Reply by Julie/MI on 10/16/07 2:47pm
Msg #216744

the norm in Michigan..

I used to work for a title company so I know all about title insurance, but I would say the average homeowner/buyer doesn't have a clue.

I have not read the other responses so I am address the norm in our state, Betsy:

In a purchase, it is the standard (although not written anywhere) that the seller pay for the title insurance for the buyer at the time of purchase. The borrower pays for the lender's title insurance policy since each need their own policy. A smart homebuyer will save that policy, because it can be turned in for credit. Back in the day, we were allowed to use abstracts for credit, but I would have to guess that doesn't fly now.

Every time a homeowner gets a second loan or refi's their existing policy, they need to get a new policy for the lender to make sure that the title is still clear from any liens such as attorney liens, state or federal tax liens, etc. The owner doesn't need a new policy because they would be aware if any liens exist and they don't need to buy something they don't need. A smart consumer requests a copy of the lender's policy that they had to buy, so if they refi again, they can turn in the policy for reissue credit.

What paper was it in, Betsy? If the news or freep, they often miss a few things.

Reply by Dorothy_MI on 10/16/07 4:47pm
Msg #216768

Re: the norm in Michigan..

A number of years ago (when the sun was shining on all of us), I was contracted to work inside a title office doing closings. We had one couple come in to close and the manager came into the closing room and said, we can't close today. Go home and see if you can find your original owners title policy because we may have to use it. They had purchased the house from a couple that either were in the process of getting a divorce or had just gotten a divorce and the proceeds were supposed to be split. Either the proceeds were not split or the Quit Claim deed was not recorded or whatever, because one of the parties had put a lien against the property.

Reply by BetsyMI on 10/16/07 5:30pm
Msg #216775

Thanks all..Dot it was in last Sunday's freep. n/m