A Close-up on Lender’s Title Insurance, Its Benefits and Its Main Requirements
If you recently purchased a property and you want a second mortgage, or are thinking of purchasing one in the near future and looking into one of the best banks or lending companies in your area, lender’s title insurance will be a clear necessity. That isn’t necessarily because it benefits you as a buyer, but primarily because lenders require it before they can grant your loan. In many cases, home buyers not only have to settle for lender’s insurance, but also need to protect their own acquisition through owner’s title insurance.
Defining and Understanding Lender’s Insurance
Lender’s title insurance, also known as a loan policy, is a form of title insurance that covers the title dispute costs that the lender would normally have to pay for, in the event that there are any title-related problems from long ago. Lender’s insurance is issued only to lenders, and it offers little benefit to home buyers, despite the fact that they have to pay for it.
Why Do You Need Lender’s Title Insurance
The need for lender’s title insurance ties in with problems related to the title of your property, including serious cases when someone might have a legal claim to your property. If the previous owner sold the property before getting a divorce, for instance, their spouse might come back to claim their share of the property. Other issues can arise regarding forged wills and documents that legally tie your property in some way to a past owner or tenant. For example, they might have a claim on some of the resources present on the property. In such an event, the claim could significantly devalue the home, making it a less viable investment for your lender. As a result, lender’s title insurance is required to cover the costs of any legal disputes and resolutions.
What Lenders Will Be Most Interested in
Lender insurance coverage can consist of any number of items that could be useful for securing a lender’s investment in the form of your home or property. Premiums will typically cover situations where:
The title of the property is subject to defects or liens.
The lien cannot be enforced or its value is voided by certain factors.
The mortgage lien is subject to mechanic’s lien.
The property cannot be accessed through regular means.
The real estate property is unmarketable.
Why Don’t Lenders Pay for the Premium?
From the lenders’ point of view, any investment company or bank that parts with a considerable sum of money in order to finance a residential property has to have some kind of leverage and security to make sure the buyer will pay off the mortgage loan. As a result, they have to secure a viable lien in the form of the real estate property itself. If you buy a house for $200,000, even with a sizable down payment, the bank will still have to pay a large portion of that amount upfront. Now, if the title examination reveals that your home has some significant title disputes that could render it unusable as a lien from the bank’s perspective, the bank would lose a lot of money just trying to settle the dispute. As a result, most banks will not even consider the possibility of paying for the title insurance that would cover their expenses in such an event, and if you want the mortgage, they will require you to pay for the premium yourself.