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In our blog post, 3 Times When You Wouldn’t Have a Clean Title, we emphasized the importance of purchasing Title Insurance, and how the transfer of home ownership is a very complex process. Now, we are going to take a closer look at Title Insurance. There are two types of title policies: a Lender’s Policy and an Owner’s Policy. A Lender’s Policy is required when you take out a mortgage loan, and an Owner’s Policy is often optional. We highly recommend getting both, and here’s why.
Also called a Loan Policy, a Lender’s Policy is intended to protect the lender for the entire duration they maintain interest in the property. In the event that the buyers end up not having legal ownership of the property, the lender would be covered for any related legal defense costs and the remaining mortgage balance. The borrower would also be protected from having to pay what they still owe on the loan. However, the borrower would not be covered on the down payment or for any money they already paid toward the principal. Plus, they would no longer have the property. That’s why Owner’s Policies are critical.
Owner’s Title Policies (OTPs) offer the most protection for the buyer. Unlike Loan Policy’s, OTPs are a one-time cost and are in effect as long as you and your heirs own the property. As an added bonus, according to our Processing Team, they make the refinancing process a lot smoother. When refinancing your home, if any title issues come up and you do not have an OTP from the time of purchase, you will have to come out of pocket to clear up the title issue. Essentially, trying to get an OTP after title issues have surfaced is like trying to get Hazard Insurance after your house has burned down. That’s why it is always best to get an OTP upfront, especially for investors with multiple properties looking to use their equity and grow their rental portfolios.