The Difference Between Lender’s Title Insurance and Owner’s Title Insurance
By Attorney Jacquelyn M. Yeakle
One of the most common questions our real estate clients ask us is, “What is the difference between lender’s title insurance and owner’s title insurance?” The short answer is lender’s title insurance, or a loan policy, is insurance that protects the lender if a title issue arises that could affect the mortgage lien on the property, and owner’s title insurance, or an owner’s policy, is insurance that protects the owner and the owner’s equity in the property if a title issue arises after settlement.
A loan policy is required. A buyer purchases a loan policy when the property is purchased, and a new loan policy must be purchased every time the property is refinanced. A loan policy is issued in the amount of the mortgage and the amount insured will continue to decline as the owner pays towards the mortgage principal. An owner’s policy is optional and is typically insured in the amount of the purchase price. It is a one-time cost when a buyer buys the property, and the policy remains in effect as long as the buyer has an interest in the property.
Although an owner’s policy is optional, it is highly recommended because it can protect the owner of the property from any of these title issues that may arise after settlement:
· A clerical or filing error in the public records is found, such as on a deed or survey.
· A boundary dispute occurs. For example, if a neighbor has a survey showing differing boundaries than what the owner purchased, then the neighbor may try to claim ownership to a portion of the owner’s property.
· An unknown easement is discovered and shows a government agency, business, or other person has access to all or a portion of the owner’s property.
· An unknown lien, such as an unpaid debt from a prior owner, is attached to the property.
· An illegal deed is detected in the chain of title.
If any of these title issues arise and the owner has an owner’s policy, the title company will defend the owner’s title as an insured. However, if any of these title issues arise and the owner does not have an owner’s policy, the owner could potentially lose all equity in the property, or the property itself. If you have any questions on the difference between a loan policy or owner’s policy, feel free to give us a call!
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