While this might not always be the case, your closing costs may include two separate title insurance costs – a lender’s policy and an owner’s policy. What makes these two items different?
Types of Title Insurance
There are two different types of title insurance. One offers monetary and legal protection to owners and the other is for lenders. Often, in order to ensure everyone involved in the transaction is adequately shielded from risk, both owners’ title insurance and lenders’ title insurance will be necessary.
Lenders’ Title Insurance (Loan Policy)
In nearly all cases, lenders will require the borrower to purchase lenders’ title insurance, called a loan policy, so that the lender’s interest in the property is protected until your loan is paid off or refinanced. It is usually based on the dollar amount of the loan and decreases as you pay down your loan until it eventually disappears as the loan is paid off. This title policy typically comes after a property title search is completed, so while the policy only protects the lender, it does offer some assurance to the buyer. These can include extended policies as well.
Owners’ Title Insurance (Owner’s Policy)
The other type of title insurance is owners’ title insurance, also called an owner’s policy. This is typically purchased by the buyer in order to protect themselves against title problems that may come to light in the future. Owner’s policies are usually issued in the amount of the real estate purchase for a one time fee that lasts for as long as you have an interest in the property. Basically, they provide assurance that the title insurance company will help you monetarily and defend you legally if need be in the event that an unforeseen or hidden title problem surfaces. Owners’ title insurance also has the option for extended policies.
Hazards Covered in Title Insurance
The typical hazards a basic title insurance policy will cover includes the following:
- Claims of ownership by another party
- Flawed or missing records or inappropriate record keeping
- Judgments or encumbrances on the property, like pending lawsuits or outstanding liens
- Improper signatures
- Forgery of documents
- Unrecorded interests by a third party
- Problems associated with a will
While title claims are rare, they can be devastating without title insurance. The problems title insurance protects against are usually claims that would be highly unlikely to be caught with a title search alone.
The Cost of Title Insurance
In New Jersey, title insurance is regulated by the state’s Department of Banking & Insurance. The NJDOBI regulates all title companies within that specific state. This means no matter which title company you use, the title premium will be the same and this applies to both owner’s policies and loan policies. The price will change based on a variety of factors related to the property such as the price of the property or the expected cost of defects. Since lenders’ and owners’ title insurance is usually required in order to properly mitigate risk for all parties involved in the transaction, they can often be purchased simultaneously at the time of closing as bundle at a reduced cost.