Two Types of Title Insurance You’ll Need When Purchasing a Home

Buying a home is one of the most important investments you’ll ever make—and one of the most expensive. As such, you want to do everything you can to protect your investment. Part of that means making sure that the property is truly the seller’s to sell, and that it is unhindered by any liens, claims, or other kinds of encumbrances.

But how can you attain such assurance? Well, you do it through title insurance. In this post, we’ll explain what title insurance does, what types of title insurance there are, and what they are used for.

Title Insurance vs. Auto/Homeowner Insurance

Title insurance guarantees that the title of the property in question is the seller’s to sell and free and clear of any liens, claims, encumbrances, etc.

A title insurance policy works differently from an auto policy or a homeowner’s hazardous policy in that a title policy doesn’t insure the future, as the auto and homeowner’s policies do, but rather it insures the past. In order to issue a title insurance policy, a title company performs a title search and analysis to identify and address title issues that could threaten the homeowner’s and/or lender’s legal rights in the subject property. Should a title claim that was not discovered in the title search arise at a later time, the title insurance company will pay for any legal expenses to investigate, litigate, or settle an adverse title claim.

Types of Title Insurance Policies

There are two types of title insurance policies:

1. Owner’s Policy

An owner’s policy will protect you from enumerated title risks, for just as long as the policyholder owns the property.

An owner’s policy is necessary for a newly constructed home because title risks may arise during its construction, such as liens from unpaid subcontractors and tax assessments, a delinquent loan the builder had taken out on the property, etc.

While it is negotiable as to who would pay for an Owner’s Title Policy, it is customary for the seller to pay for it in Southern California. However, for new constructions in SoCal, the builders usually ask the buyer to pay for Owner’s Policy as a condition to sell the new home to the buyer.

2. Lender’s Policy

Any time a buyer is taking out a home mortgage to purchase or refinance a property, the lender always requires the buyer to buy a new lender’s policy. This is to ensure that their mortgage liens against the property are valid and can be enforced, and that they have priority over other liens and claims. A Lender’s Policy protects the lender for the duration of the mortgage loan.

In a refinance transaction, the owner might have incurred new liens & encumbrances on the property since the last time a lender’s policy was issued, which will expose the new refinance lender to new title risks. Such title risks for refinances include junior mortgages, mechanics’ liens, liens derived from unpaid taxes, and claims related to homeowner divorce, re-marriage, bankruptcy, etc. Hence, a new lender’s policy is needed.

In a cash-buy real estate transaction, no lender’s policy is needed since there isn’t a lender involved in the transaction.

Learn More about Home Insurance

Please contact Tiger Loans to learn more about the types of title protection you can and should have as a homeowner.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.