About Title Insurance
The primary purpose of title insurance is risk elimination. The title policy is designed to state a fact, the quality of ownership of, or other interest in, real property at a specific moment in time.
An owner’s policy insures the owner’s interest in the property. The policy becomes effective as of the date and time the deed is recorded and, subject to the policy’s other terms and provisions, insures against loss or damage by reason of:
The policy may also cover the costs, attorney’s fees and expenses incurred in defense of the title, as insured, but only to the extent provided in the policy’s Conditions and Stipulations.
An owner’s policy remains in force for as long as the owner(s) and any heirs own the property. Owner’s coverage can also continue after the property is conveyed out if by deed with warranty covenants.
A loan policy insures the lender’s security interest in the property. It insures that the lien of the insured mortgage is enforceable and, subject to the policy’s other terms and provisions, insures that the lender has a valid priority lien on the property. Lender’s coverage is limited to the amount of the indebtedness, and when the loan is paid off, the loan policy is no longer in force. A loan policy only insures the lender’s interest as mortgagee and does not insure the owner. An owner cannot make a claim under a loan policy. A claim by the lender under a loan policy generally only arises if the loan is in default and the lender forecloses on the property.
The following real-life example will demonstrate why an owner is not protected by a loan policy. When buying a property, the owner does not purchase an owner’s policy. Only a loan policy is issued. The owner finds out that a serious title problem exists. Without an owner’s policy, the owner cannot make a claim with the title insurer and does not have the resources to fix the problem. The owner stops making mortgage payments and the lender forecloses. The title insurer satisfies the lender’s claim by purchasing the mortgage and note from the lender. The title insurer is now the mortgagee and can demand that the owner pay it the amounts owed under the note. Furthermore, if the mortgage contained warranty covenants, the title insurer could sue the owner to clear the title defects.
If the owner had simply purchased an owner’s policy, the title insurer would have been obligated to correct the covered title defects or reimburse the owner for insured losses up to the amount of the policy and defend against any lawsuit attacking the title as insured.
The above article was provided by First American Title Insurance Company. For additional information, call 800-448-7771.