Q. What exactly is title insurance and why do I have to pay for it when I get my mortgage loan?
A. When a would-be borrower applies for a mortgage loan, the lender will check for any liens that may have been filed against the title of the property. Liens are charges against the property making it security for the payment of taxes, home repair bills such as those made by a contractor, or legal judgments. Sometimes a lien may not show up during the title search.
The lien-holder, however, still has a legal claim against the property even though the liens were not found. Title insurance will offer protection against any undiscovered liens that may surface after the loan closing.
The title insurance is actually purchased for the lender to protect him/her from loss if a defect in the title is found. Depending on local custom, the seller may purchase this insurance for the lender.
Q. What is the difference between lender title insurance and borrower title insurance?
A. Since the property serves as collateral for the loan, lender title insurance will protect the lender s interest in the transaction. If there is a future claim against the property s title, lender title insurance will reimburse the lender for any losses incurred. This is the insurance that the lender usually requires a buyer to purchase, and is issued after a thorough title search, which examines all public records that pertain to that property.
Borrower title insurance will offer similar reimbursement to the borrower, but the lender does not usually require it. Depending on local custom, the seller may purchase this for the borrower or the borrower can purchase it for him or herself.