Real estate Q&A: Why do I need to buy two title insurance policies?

Q: We are closing on a new home shortly and just received our lender’s estimate of the closing costs. It is charging us for both an owner’s title insurance policy and another one for the lender. Is this normal, or should we insist that the lender pays for its title policy? — Bruce

A: Title insurance protects your ownership of your home while homeowners insurance covers damage to your house.

You will only pay for a title insurance policy once, and it remains valid as long as you own your home. Title insurance covers claims against your ownership in your property due to problems in its “chain of title” or the series of historical ownership records for your home. Issues such as fraud, mis-indexed or defective deeds, undisclosed heirs, forgeries, and unpaid liens damaging your ownership are covered. If one of these issues occurs, the title insurer will either write a check or hire a legal team to fix the problem.

There are two main types of title insurance policies, one covering the homeowner and the other covering the loan. Because many of the problems covered by title insurance are difficult to find by ordinary means, almost all mortgage lenders will require their borrowers to purchase a lender’s policy when getting a loan. Just like the appraisal and other loan costs, the borrower pays for this policy.

While owner’s title policies are technically optional, it would be a mistake not to purchase the coverage.

Title insurance is relatively inexpensive, considering it covers the entire purchase price of your new home for as long as you own it. Also, when you purchase an owner’s policy, you can buy the required lender’s policy at a massive discount since much of the coverage overlaps.

Some people question why they need an owner’s title policy if their lender is already getting one. They believe that if the insurance company has to fix the ownership issue for the lender anyway, their policy is unnecessary.

This is not the case because, for example, if they own their home for a decade and pay down their mortgage before the title claim turns up, the insurance company could decide to pay the remaining loan balance leaving the unprotected homeowner to fix the issue themselves or risk losing all of their equity in the home.

ABOUT THE WRITER
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He practices real estate, business litigation and contract law from his office in Sunrise, Fla. He is the chairman of the Real Estate Section of the Broward County Bar Association and is a co-host of the weekly radio show Legal News and Review. He frequently consults on general real estate matters and trends in Florida with various companies across the nation. Send him questions online at www.sunsentinel.com/askpro or follow him on Twitter @GarySingerLaw.

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