Lender Title Insurance – An Overview

When you buy a new property or refinance your existing one, your lender will require a lender title insurance policy. It is a form of insurance that provides protection to the lender against any loss in case of any defects or disputes with the title of the property.

What is Lender Title Insurance?

Lender title insurance is a policy that protects the lender against any loss that may occur due to defects in the title of the property. The policy covers the lender’s investment in the property, which is usually the loan amount.

The policy is purchased by the borrower but only protects the lender’s interests. The policy is a one-time premium payment made at the time of closing and remains in effect as long as the loan is outstanding. If the borrower refinances the loan, a new policy is required.

What does Lender Title Insurance Cover?

Lender title insurance covers any defects in the title that may arise after the purchase or refinance of the property. Some common issues that the policy covers include:

• Forged documents or signatures
• Undisclosed heirs or ex-spouses claiming ownership
• Fraudulent acts committed by previous owners
• Liens or claims against the property
• Missing or incorrect legal descriptions
• Boundary disputes with neighbors

What is the Cost of Lender Title Insurance?

The cost of lender title insurance varies depending on several factors such as the loan amount, the location of the property, and the title company selected. Typically, the cost of the policy is a percentage of the loan amount and can range from 0.5% to 1% of the loan amount.

It is important to note that the cost of lender title insurance is a one-time fee paid at the time of closing and is a small percentage of the total cost of the loan.

Why Do Lenders Require Title Insurance?

Lenders require title insurance to protect their investment in the property. The policy provides assurance that the title of the property is clear of any defects or disputes that can impact the value of the property or the ability to sell it in the future.

Without lender title insurance, the lender would be at risk of losing their investment in the property in case of title defects or disputes. The policy provides a safety net for the lender and helps to reduce the risk associated with lending money for the purchase or refinance of a property.

What is the Difference Between Lender Title Insurance and Owner Title Insurance?

Lender title insurance and owner title insurance are two different policies that protect different parties in a real estate transaction.

Lender title insurance only protects the lender’s investment in the property and does not provide any coverage to the borrower or owner of the property. The policy is required by the lender as a condition of the loan and is a one-time premium paid by the borrower at closing.

Owner title insurance, on the other hand, protects the owner or borrower’s interests in the property. The policy covers any defects or disputes with the title that may arise after the purchase of the property. It provides peace of mind to the owner and ensures that their investment in the property is protected.

When is Lender Title Insurance Required?

Lender title insurance is required in most real estate transactions where the lender is providing financing for the purchase or refinance of a property. The policy is typically required by the lender as a condition of the loan and is a one-time premium paid by the borrower at closing.

Even if the borrower has previously purchased owner title insurance, lender title insurance is still required by the lender to protect their investment in the property.

What Happens if There is a Title Defect After Closing?

If there is a title defect or dispute after closing, the lender will file a claim with the title insurance company to recoup their investment in the property. The title company will investigate the claim and provide coverage if the claim is valid.

It is important to note that lender title insurance only covers the lender’s investment in the property and does not provide any coverage to the borrower or owner of the property.

Conclusion

Lender title insurance is an important component of any real estate transaction where the lender is providing financing for the purchase or refinance of a property. The policy protects the lender’s investment in the property and provides a safety net in case of any defects or disputes with the title.

While the policy is a one-time premium paid by the borrower at closing, it offers peace of mind to the lender and ensures that their investment in the property is protected.

FAQs

• What is the difference between lender title insurance and mortgage insurance?

  Lender title insurance protects the lender from any loss due to title defects or disputes, while mortgage insurance protects the lender from any loss due to default by the borrower.

• Do I need lender title insurance if I am paying cash for the property?

  No, if you are paying cash for the property, lender title insurance is not required. However, owner title insurance is still recommended to protect your interests in the property.

• Can I choose my own title insurance company for lender title insurance?

  Typically, the lender will have a list of approved title insurance companies that can be used for lender title insurance. However, in some cases, it may be possible to choose your own title insurance company with the lender’s approval.