Types of Title Insurance Policies
There are two main types of title insurance policies: lender’s policy and owner’s policy. Each of these policies serves a distinct purpose and protects different interests within a real estate transaction.
Owner’s Title Insurance:
A lender’s title insurance policy is an essential component of the mortgage lending process. This policy protects the mortgage lender’s priority interest, particularly in the event of a forced sale or other title-related issues. Should any title defects or claims arise after the purchase, this policy ensures that the lender will be compensated for the outstanding loan balance, as well as any associated costs.
Because the lender’s title insurance policy is designed to protect the lender’s investment, it is a mandatory requirement for securing a mortgage. The cost of this policy is typically included in the closing costs, which are generally paid by the buyer.
Lender’s Title Insurance:
While not always mandatory, an owner’s title insurance policy is highly recommended for buyers. This policy protects the buyer’s ownership rights to the property, covering potential issues such as mechanic’s liens, boundary disputes, or unpaid taxes that could threaten the buyer’s title. The owner’s policy is typically issued for the full purchase price of the property and provides long-term protection for the homeowner.
The specific terms of an owner’s title insurance policy, including the types of claims covered and any exclusions, are clearly outlined in the policy documents. Understanding these details is crucial for homeowners to know exactly what is protected under their policy.
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