There are two basic title insurance policies: a buyer’s or owner’s policy and a lender’s policy. Both policies effectively protect against the same sorts of risks.
The major difference is how the policy is terminated and potentially the premium associated with the policy.
The owner’s policy refers to the title insurance policy that protects the title holder. Technically, owner’s policies are not a requirement of buying or owning property, but in most transactions, the buyer will obtain title insurance. Who pays for the owner’s policy can vary from transaction to transaction. This is often negotiable, and each state has different conventions related to who pays. Whether buyer or seller in the transaction, the purchaser pays one premium and then is insured for as long as she holds the title. No additional premium is ever required to be paid.
Any claims, defects, prior encumbrances, or other issues not specifically excluded from the policy from before the owner purchased the title are covered.
By lending money to the buyer to purchase the property, the lender gains a security interest in the title. Basically, the lender has an interest in taking possession of the title if the borrower cannot pay back the loan. Thus, the lender wants to make sure the title is clean and the lender is protected if they need to take possession.
The lender’s policy protects the lender against the same risks as the owner, but only until the borrower has paid off the loan. This is almost always required in a transaction being financed by a lender. Once the loan is paid, the lender has no more interest in the title and, therefore, the policy is no longer needed.
As part of closing costs, lenders will often require borrowers to purchase lender’s policies on behalf of the lender. So, the buyer will often pay for two policies: one for the buyer and one for the lender. Lenders vary on this point, with some picking up the bill for the lender’s premium. Generally, in a situation in which an owner’s and lender’s policy are being purchased simultaneously, the premium for one of the policies is significantly reduced.
Premiums vary according to a number of factors, not the least of which is the jurisdiction where the property is located.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
