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| Sandy Gadow, a featured guest on CNN's "Open House," and a speaker on national radio as the escrow expert and has more than 25 years experience in escrow, title and real estate. A mortgage broker and real estate sales associate, Sandy is a member of the American Land Title Association, the National Association of Realtors, and on the advisory council for the Escrow Career Center. She is the author of The Complete Guide to Your Real Estate Closing and a guest contributor to Nolo's Essential Guide to Buying your First Home. She specializes in assisting the American as well as international client. If you have questions for Sandy see our Ask Sandy page. Here are a few recent articles. |
Coverage And Types Of Title Insurance Policies
There are two types of title insurance polices, the owner's policy
and the lender's policy. When you buy your home you will arrange to buy
title insurance which will cover your interest in that property. The limit of
this owner's policy will generally be for the market value of the house at
the time of the purchase. If you will be obtaining a mortgage on the
property, your lender will require a lender's policy to protect their
interest in the property. The lender's policy will be written for the amount
of the mortgage. You may be wondering why two policies are necessary to
insure the same piece of property or you may be wondering if you have to pay
two separate title insurance premiums. In most cases, you will pay for the
two policies together and this cost will be a discounted price.
The owner's policy will cover losses or damages you suffer if it is
found that the property belongs to someone else, or if there is a defect or
lien on the title, if the title is unmarketable, or if there is no access to
the land. Your owner's policy will have a section setting forth what is
covered as of the effective date. It will guarantee that your ownership is
free from defects or encumbrances, except any listed as exceptions in the
policy, it will guarantee your have access to the land, and it will guarantee
that you have the legal right to sell the property and convey marketable
title to a new owner. If you buy the property for $100,000, then the owner's
policy will be written for the full amount, $100,000.00.
The lender's or mortgagee policy, on the other hand, protects the
lender for the amount of their loan. If they loan you $80,000.00 on your
house, then their policy will be for that amount only, $80,000.00. This type
of policy is called the ALTA policy and is a standard policy approved by the
American Land Title Association. It is issued to banks and other
institutional lenders. In addition to covering the lender for the losses
included in the owner's policy, the lender's policy includes coverage for any
losses that the lender would incur if another creditor were first in line.
If, for example, you were to take out a second mortgage and had managed to
keep this second loan hidden while refinancing your first mortgage, the
second mortgage would take first place in the event of a foreclosure action.
The lender's title insurance policy would cover the mortgagee of the first
loan if this were to occur.
When an owner's and a lender's policy are issued at the same time, or
concurrently, the premium is less expensive than if the two polices are
issued separately. Since the title insurance company only has to search the
records one time, and because a concurrent policy doesn't increase the risk
that much, the concurrent policy premium will generally cost about one third
less than two separate policies. If there were to be a loss, the title
company would be liable to the owner for the amount of their equity, in this
case, $20,000.00 and to the lender for their value of their mortgage,
$80,000.00 for a total of $100,000.00. With $100,000 of coverage, the title
insurer has covered both policies.
The costs of the owner's and the lender's policies will vary
depending on the location. The costs may vary from state to state, or county
to county, or even from one company to another. Before choosing your title
company or closing agent, inquire as to the prices they charge for a title
insurance policy. Ask for the lowest rate allowed by law, and keep shopping
for a lower rate if your closing agent will not negotiate on their fees.
Copyright © 1999
Sandy Gadow. This column may not be resold,
reprinted, resyndicated or redistributed without the written
permission from Escrow Publishing Company.
Related Question
Related Information
Related Article
Related Information
- Title Insurance Glossary
- Look up title insurance terms and definitions
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