What are the differences between lender’s title insurance and owner’s title insurance?
It's important for buyers to understand that even though they may be paying for the lender's title insurance, it does not protect their interests. Owner's title insurance is the only way to protect their investment in the property.
Lender's Title Insurance:
Purpose: This insurance primarily protects the lender's interests in the property up to the amount of the mortgage loan. It ensures that the lender has a valid, enforceable lien on the property.
Coverage: It covers issues that might affect the lender's loan security, such as legal claims from undisclosed heirs, liens from contractors, or recording errors in public records.
Duration: The policy remains in effect until the loan is paid off, refinanced, or the property is sold.
Beneficiary: Only the lender is protected by this policy. If a title issue arises, the lender is compensated up to the amount of the loan.
Payment: Typically, the borrower pays for the lender's title insurance policy as part of their closing costs, although this can vary based on local customs and negotiations.
Owner’s Title Insurance:
Purpose: This insurance protects the buyer's equity in the property. It ensures that the buyer is the rightful owner and guards against future claims against the title.
Coverage: It covers a broad range of risks, including forgery, fraud, errors in public records, unknown heirs, and some types of encroachments or easements.
Duration: The policy lasts as long as the owner or the owner’s heirs have an interest in the property. Unlike lender’s insurance, it's a one-time purchase that lasts for the duration of ownership.
Beneficiary: This policy directly protects the homeowner. If a claim is made against the title, the owner’s policy covers legal fees and losses up to the value of the property.
Payment: The owner's policy is usually optional and paid for by the buyer, but in some cases, the seller might pay for it as part of the negotiation process.
Key Differences:
Protection Focus: Lender's insurance protects the lender's loan interest, while owner's insurance protects the buyer's equity.
Duration: Lender's insurance lasts until the loan is settled, whereas owner's insurance lasts as long as the owner has an interest in the property.
Beneficiary: Lender's insurance benefits only the lender, while owner's insurance benefits only the property owner.
