Real Estate Advice: Title insurance for both the lender and owner
Reposted Q&A by Linda Goodspeed, Needham Times Correspondent
Q: If I have to buy a title insurance policy for the lender, is that all I need? Will that cover me as well?
A: Your question highlights a commonly misunderstood issue regarding title insurance.
If you are a buyer and are using a mortgage to purchase a property, the lender will require you to purchase a title insurance policy that names the lender and is for the amount of the loan. This title insurance policy on the home will cover only the lender for any loss on any title issue. The lender’s policy does not cover the homeowner. That is why borrowers should purchase an owner’s title insurance policy at the same time they purchase the lender’s policy, or receive an owner’s policy from the seller.
An owner’s title insurance policy guarantees the owner that if for some reason the owner doesn’t have the right to sell the home, the title company will reimburse the owner for any money they paid for the home up to the amount of the title policy. There are many things that could affect title to the property: There might be an easement or some other undisclosed issue such as a mortgage or lien that was not paid off. A family member might have bought the property at some time in the past and not recorded the deed. A previous owner might have had work done on the property and not paid the contractor in full, who then filed a lien against the property that may not have showed up in a title search. Although fairly rare, there are many types of situations that may affect the title, and an owner’s right to sell the property. The risk is large. A home is likely the largest asset you will ever purchase. That is why you should purchase a homeowner’s title insurance policy.
Having said that, be aware that there are many issues a title insurance policy does not cover. For example, foundation problems, a dysfunctional heating system, poor wiring or plumbing, a leaky roof or some other problems that reveal themselves after closing. But for what it does cover, title insurance is worth it. And a buyer should always purchase an owner’s title insurance policy at the same time he/she purchases a policy for the lender.
Linda Goodspeed is a longtime real estate writer and author of “In and Out of Darkness.” Email her at firstname.lastname@example.org.
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