You may see two kinds of title insurance on your closing paperwork and wonder why both are there. The short answer: one protects the lender’s interest in the property, while the other can protect yours.
What does a title search do?
Before closing, a title professional reviews records connected to the property. The search may reveal an existing lien, an error in a recorded document, or another issue that must be addressed. Even careful research may not uncover every past problem, which is one reason title insurance matters.
The lender’s policy
When a buyer uses a mortgage, the lender generally requires a lender’s title insurance policy. It protects the lender’s interest if a covered title problem affects the property. A lender’s policy does not protect the buyer’s ownership interest.
The owner’s policy
An owner’s title insurance policy can protect the buyer’s financial interest if someone later asserts a covered claim tied to an issue that existed before the purchase. The exact protection depends on the policy, its exceptions, and the facts of a claim. An owner’s policy is generally optional from the lender’s perspective, although a contract or local practice may affect how the transaction is structured.
A useful question before closing
Ask for the title commitment and the proposed policy information, then ask your settlement team to explain any exceptions or requirements you do not understand. Also ask how the owner’s and lender’s policies are priced together and who is responsible for each charge under your contract. Your Loan Estimate and Closing Disclosure may display title premiums differently from an itemized title quote, even when the overall amount is consistent.
If you are comparing estimates, compare the full title and settlement costs and the coverage being offered. Stalwart Settlement Services can walk you through the title portion of your closing paperwork and help you understand the next step for your transaction.