Spring Break
Home insurance doesn't protect your property loan
Jessica White/DC Columnist
Issue date: 11/4/07 Section: Business
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Dear Ms. Mortgage Maven,
I am refinancing my home of eight years with the same lender who holds my current mortgage. I was told that I need to buy a new title policy. It is very expensive. Can you explain why I have to buy a new policy, since I am using the same lender? It is expensive and I don't want to incur any unnecessary costs. Also, since I have owned the property for so long, I really do not foresee any title claims arising.
Thanks,
DJ
Dear DJ,
Title insurance is probably one of the least understood aspects of a real estate purchase. There are two types of title insurance: an owner's policy and the lender's policy. The owner's policy protects the owner of the property for the full value of the property, and the lender's policy protects the lender for the amount of the loan.
Unlike most insurance premiums that are paid monthly to protect against a future loss, (for example, you pay auto insurance each month to cover you in the event of a future accident), the title insurance premium is paid upfront to protect the policy holder from errors or weaknesses in the title that have already occurred but may not yet be discovered. The most frequently cited example of an error in the chain of title is a forgery. Other examples include unknown or missing heirs to a property.
Anyone who uses a mortgage to buy or refinance a property has to at least obtain a lender's title policy. Again, this policy protects the lender - not the buyer or owner of the property - from any claims that may arise against the title of the property. However, the lender does not pay for this insurance. In some states, it is customary for the buyer to pay for the title policy, in other states the seller may pay for it. (But in all jurisdictions, deciding which party pays for various closing costs, including title insurance, can be negotiated.) The lender will require enough title insurance to cover the amount of the loan. When purchasing a property, an owner's title policy can be issued at the same time, generally for an additional nominal fee, and will cover the full value of the property and protect the owner's equity against title claims.
I am refinancing my home of eight years with the same lender who holds my current mortgage. I was told that I need to buy a new title policy. It is very expensive. Can you explain why I have to buy a new policy, since I am using the same lender? It is expensive and I don't want to incur any unnecessary costs. Also, since I have owned the property for so long, I really do not foresee any title claims arising.
Thanks,
DJ
Dear DJ,
Title insurance is probably one of the least understood aspects of a real estate purchase. There are two types of title insurance: an owner's policy and the lender's policy. The owner's policy protects the owner of the property for the full value of the property, and the lender's policy protects the lender for the amount of the loan.
Unlike most insurance premiums that are paid monthly to protect against a future loss, (for example, you pay auto insurance each month to cover you in the event of a future accident), the title insurance premium is paid upfront to protect the policy holder from errors or weaknesses in the title that have already occurred but may not yet be discovered. The most frequently cited example of an error in the chain of title is a forgery. Other examples include unknown or missing heirs to a property.
Anyone who uses a mortgage to buy or refinance a property has to at least obtain a lender's title policy. Again, this policy protects the lender - not the buyer or owner of the property - from any claims that may arise against the title of the property. However, the lender does not pay for this insurance. In some states, it is customary for the buyer to pay for the title policy, in other states the seller may pay for it. (But in all jurisdictions, deciding which party pays for various closing costs, including title insurance, can be negotiated.) The lender will require enough title insurance to cover the amount of the loan. When purchasing a property, an owner's title policy can be issued at the same time, generally for an additional nominal fee, and will cover the full value of the property and protect the owner's equity against title claims.
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