Title Insurance 101
Navigating the Differences Between Lender’s and Owner’s Policies
by Radian Title Services
Protecting assets is a primary goal for experienced real estate investors, but do you fully understand one of the most common safeguards in property transactions? Title insurance for your investments comes in two forms: the lender’s and owner’s policies. All investors should understand these policies and how they may help protect real estate assets.
Lender’s Title Insurance Policy
Lender’s title insurance policies may be required when borrowers take out a mortgage. Here is some helpful information:
» Coverage Scope // Only protects the lender’s interest in the property up to the loan amount.
» Diminishing Value // As borrowers pay down the principal mortgage amount, the policy’s coverage amount also decreases accordingly.
» Limited Lifespan // Once the loan is paid off, the insurance policy expires.
Lender’s title insurance policy coverage does not extend to a borrower’s equity in the property. Should a claim arise under a lender’s title insurance policy, the borrower may still be responsible. It is important to note that lender’s coverage does not apply when you pay cash for a property.
Owner’s Title Insurance Policy
Protecting your stake in a property is where owner’s title insurance may help:
» Equity Protection // Helps safeguard ownership rights and the full value of the title1.
» Lasting Coverage // Policy coverage does not expire once the mortgage is paid off (or if you have paid in all cash). Instead, the policy terminates when the insured sells the property.
» One-Time Investment // These policies are paid for once at closing, and coverage continues for as long as the owner, or their heirs, have an interest in the property.
Owner’s title insurance policies may not be just a safety net, but also a strategic tool. It can help protect your property interests from unforeseen claims, such as:
» Undisclosed heirs of prior title holders claiming ownership
» Forged documents that occurred prior to insurance policy issuance
» Errors in public records
» Undiscovered liens or encumbrances
Not All Title Insurance Policies Are Made Equal
It is easy to believe that all title insurance policies are created equal, but that is not entirely true. While the American Land Title Association (ALTA) and state land title associations provide standard policy forms, there can be variations in coverage and service quality.
Innovative title companies are disrupting the status quo. For instance, Radian Settlement Services offers titlegenius by Radian, a 100% digital closing platform that revolutionizes closings:
» Competitive Rates // Helping to potentially reduce closing costs without compromising on protection.
» Enhanced Transparency // Stay informed at every step of the closing process with reminders and status updates.
» Bulk Order Uploading // Reduce the time spent manually ordering title insurance for each closing.
These innovations represent convenience, potential cost savings, and help to reduce uncertainty around your real estate closings.
Strategic Considerations for Title Insurance
» Portfolio Protection // When building a real estate portfolio, consider how an owner’s title insurance policy may provide long-term protection across multiple properties.
» Due Diligence Tool // The title search process for title insurance can help uncover potential issues before you close, enabling proactive addressing.
» Cost-Benefit Analysis // The advantages of owner’s title insurance policies may exceed the initial investment when you compare that cost to potential expenses incurred while fighting claims not covered by insurance.
The Bottom Line
Your success hinges on making informed decisions that help to protect your assets. While lender’s title insurance policies are oftentimes mandatory, owner’s title insurance policies may be used as strategic investments in your portfolio’s future.
Safeguarding assets is essential. Incorporating title insurance into your investment strategy may help to protect your property rights and provide peace of mind.
1 Coverage amount may be the lesser of the insurance amount or the difference between value of title as insured and value of title subject to the risk insured against by the policy. Coverage does not include forgery that occurred pre-policy issuance (or the Investor’s acquisition); other restrictions may apply.
