Many customers often inquire why they are separate title policies for owners and lenders. So, let’s dive in to discuss the differences between these two types of title insurance and why they are important!
Title Insurance Basics
Before discussing the difference between owner’s and lender’s title insurance, lets answer the question: What exactly is “title insurance?” Well, when a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.
When you buy title insurance for your property, a title company searches these records to find – and remedy, if possible – several types of ownership issues. First, the title company searches public records to determine the property’s ownership status. After this search, the underwriter will determine the insurability of the title.
Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So, after the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.
Lenders Loan Title Insurance Policy
Most lenders require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases as you pay down your loan and eventually disappears as the loan is paid off.
Owner’s Title Insurance Policy
An Owner’s Policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you have an interest in the property. Only an Owner’s Policy protects you, the buyer, should a covered title problem arise. Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
An Owner’s Policy provides assurance that your title insurance company will stand behind you—monetarily and with legal defense if needed—if a covered title problem arises after you buy your home.