Owner's Title Insurance vs. Lender's Title Insurance

Title insurance is insurance, just like any other insurance, except that here it insures against defects in ownership. A policy of title insurance is like a pre‐paid legal agreement: the title insurer will provide legal defense against challenges to the buyer’ insured title (dependent, of course, upon the type of policy coverage) and will reimburse the buyer financially for losses due to covered defects in the buyer’ ownership rights. An owner'spolicy insures buyers that the title to the real estate is free from all defects, liens and encumbrances except those that are listed as exceptions in the policy or are excluded from the policy’s coverage. It also covers losses and damages suffered if the title is unmarketable. The policy also provides coverage for loss if there is no right of access to the land. These are the basic coverages and an enhanced residential owner's policy can be purchased that cover additional items of loss.

If I get owner’s title insurance am I protected?

About as protected as you can possibly get, particularly with an enhanced title insurance policy. I highly recommend it. If you ever have a loan officer or lender tell you that an owner’s policy is not needed (so you can save some money) you ought to ask them why then they require you to pay for a (lender’s) policy to protect them. If you ever have a realestate agent tell you an owner’s policy is not needed you ought to get that in writing so you can later sue them (does not need to be in writing, it’s just that the evidence of the bad advice is better).

Doesn’t the lender’s title insurance policy protect me?

No. It is called a lender’s policy because the lender is the insured, not the buyer, which means the buyer has no rights whatsoever under that policy. Many people think that if a lender’s policy pays the note will be paid and so the loss will not be that great and so they are somewhat protected. This is misguided and wrong for several reasons. First, an owner is not compensated for the equity in the property. Second, even if the lender’s policy “pays off” what in effect happens is that the title insurance company will buy the note from thelender. So even then the buyer is not helped because the title insurance company steps into the shoes of the lender – who has an unpaid note from the buyer – and they can insist a buyer pay regardless whether the collateral for the loan has been lost or not. Besides, a lender’s policy only insures the deed of trust securing the note, not the fee simple title a buyer would be concerned about, and so there are many different coverage provisions is not compensated for the equity in the property. 

Call me at 757.595.5655 or email me at bdlytle@lytlelaw.com