What are the various types of Title Insurance?

Types of policies

There are two (2) standard forms of title insurance. The first covers owners and the other covers lenders. Each policy has specifically designed language protecting the property.

Owner's Policy:

When you purchase a property, you want to ensure that there are no title defects, that there are no outstanding lies or loans which you might ultimately be held responsible for. For instance, if you were purchasing a home from a divorced person and as part of the divorce settlement there was a buyout involved, the title may still include the divorced spouse (who was bought out). In this instance, title insurance would require the insurance company to 'clear' this defect in the title prior to the title being transferred to you.

Owner's policies guarantee that the title is free from defects, encumbrances or liens unless it is specifically listed as an exception to the policy or if it is excluded from coverage. In the event that you suffer a loss or damages as a result of this defect (i.e. the title is unmarketable), the title insurance company would be responsible for those losses or damages. In the event that the deed offers no right of access to the land that is covered (which is a basic coverage) then the loss would be covered by the insurance company.

Owner's policies typically have a liability limit up to the price of the property that has been purchased, though coverage may be added or removed with various endorsements offered by title insurance companies. Depending on the state, the buyer of a property or the seller of a property may be required to pay the premium for title insurance. The details of this are typically available when signing a purchase and sale agreement (or other real estate contract which may be used). Typically loan officers, escrow officers, brokers or real estate attorneys will provide information to the consumer about the cost of both title search and insurance when the agreement is signed. Title insurance is valid until the property is transferred to a new owner, though only one premium is paid up front.

Lender's Policy

Most lenders assign their mortgage loans in the secondary market. Because of this, the purchaser of the loan needs to have certain assurances that the loan is actually owned by the company selling it. Lender's policies are issued to mortgage lenders and 'follow' the sale of the loan to the new mortgage holder. The secondary market includes not only Fannie Mae (FNMA) but also Federal Home Loan Mortgage Corporation (FHA) and many other private institutions.

Lender's policies have certain elements that provide the lender loss coverage including (but not limited to):

A) The title is not in the borrowers name; has an existing lien or is otherwise unmarketable;
B) There is no access to the property
C) The mortgage is unenforceable or invalid because it is 'newer' than other liens
D) Mechanic's liens exist on the property

Any of these 'defects' in title can prevent:

1. Foreclosure on the property
2. Invalid lien in the event of foreclosure

Various policies cover 1-4 family houses and cover losses that might occur from forged releases of mortgage or losses that are a result of encroachments due to improvements on properties that surround the property in question. Typically this would be the result of additions or other improvements that were done after the lender loaned money on the property that is insured.

Construction Loan Policies

Some states require separate title insurance policies for construction loans that insure the property for increasing amounts as the construction takes place.

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Refinance:	yes     no