Updated: Mar 30
You can expect to have a conversation about title insurance when you purchase a piece of property. It doesn’t matter whether you are buying a new home, vacant land, or commercial property, title insurance is offered to you at closing to protect you against any title issues that may appear down the road.
As the new owner, you aren’t the only one with a financial interest in your property. Your lender has taken a risk by providing you with the funds necessary to make the purchase. That means your lender has an interest, too.
Let’s take a look at lender’s title insurance and what it covers.
How Title Insurance Works
Once you sign the initial contract to purchase real estate, your title company will initiate a title search. This is a deep dive into property records that will date back to its beginning, checking the transfers, public records, tax records, and the like to ensure that the title is free and clear before you purchase it.
Unfortunately, in this title search, things can get missed. For instance, this could be due to an oversight by the title examiner or perhaps the result of an erroneously recorded document.
Title insurance policies protect against any financial losses should one of these missed title issues appear in the future after the title changes hands. The insurance company will address the claim and take any action necessary to fight it. Sometimes this turns into a legal battle.
This policy is paid for with one premium payment at closing (usually by the buyer) and will remain in effect until the loan is satisfied.
What Lenders Title Insurance Covers
A lender’s title insurance policy protects the lender’s interest in the property by covering any issues that result from title defects that were missed during the title search. A few of the most common claims include:
Outstanding property taxes
Forged or fraudulent documents
Anytime one of these things is missed during a title search, a lender’s title insurance policy works to cover the claim in a manner that will reduce the impact faced by the lender company.
What is Not Covered By Lenders Title Insurance?
If a lender’s title insurance policy covers all of these things, what does it not cover?
First, it doesn’t cover any of the owner’s interest in the property. Even though both the owner and the lender will be impacted by a title issue, this policy only protects the lender. If the owner wants to have protection, they will need to invest in an owner’s title insurance policy.
Second, things that are covered by a homeowner’s insurance policy, such as fire, flood, and other similar issues that cause damage will not be covered by a title insurance policy. The latter solely focuses on title issues.
Lenders Title Insurance at Endeavor Title
Whether you are closing on your property the first time - or you are refinancing - you are likely to find yourself in need of lender’s title insurance. This is the easiest way for your lender to reduce their risk when lending you money.