The distinction between lender's and owner's title insurance matters in every purchase transaction. One protects the institution. The other protects the buyer. An MLO who does not explain this difference leaves their borrower exposed to a defect that only one policy covers.
What Lender's Title Insurance Does
- ✦Covers the lender's interest only, not the buyer's equity.
- ✦Coverage declines as the loan balance is paid down.
- ✦Pays out to the lender, not the borrower, in the event of a title claim.
- ✦Does not protect the borrower against unknown heirs, undisclosed liens, or fraudulent prior conveyances.
What Owner's Title Insurance Does
- ✦Covers the full purchase price for the life of ownership.
- ✦Protects against undiscovered prior liens, fraudulent documents in the chain of title, and errors in public records.
- ✦Enhanced owner's policies (ALTA Homeowner's) also cover post-policy risks like encroachments and zoning violations.
- ✦Premium paid once at closing; no ongoing payment required.
When Buyers Typically Skip Owner's Coverage
Cash buyers are not required to purchase either policy, though it is strongly advisable. Some borrowers decline to save a few hundred dollars upfront without understanding the risk. States with mandatory attorney closings create a false sense of security. The attorney's review of title confirms what is in the public record but does not insure against claims that arise after closing. Only an owner's title policy does that.
Aria can explain both title policies, describe scenarios where each applies, and help MLOs frame the conversation with first-time buyers considering whether to purchase owner's coverage. Ask at vicariointel.com.
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