Sunday, March 18, 2007

query: mortgagee title policy vs. owner title policy

Actually, it's called a loan policy, but that's ok. I'll bet you are a lender because most people don't know the word mortgagee. ;) Anyway.....

The loan policy insures the lender only. That's the biggest difference.

Homebuyers who pay for a loan policy are receiving absolutely no protection at all.

Lenders are smart. They won't loan money without title insurance protection. How did they get so smart? They got burned many times over with title problems. Lenders have learned the value of title insurance.

That doesn't mean that your loan officer has learned the value of title insurance. In fact, your loan officer might not understand title insurance at all. I am saying that lenders - the people at the highest level, who set the underwriting guidelines and assess risk, understand the importance of title insurance. That's why you have to buy it.

Some people might make the incorrect assumption that a loan policy issued = good title search = they don't have to buy an owner policy. BAD MOVE.

Title insurers may not use the same search criteria or decision making method when they are only issuing a loan policy. WHY?

It's a numbers game. Title insurers know that the lender will only be making a claim IF the mortgage goes into foreclosure and IF there is a title problem. They aren't as strict when they review title because they are making a bet. What are the odds that you will go into foreclosure AND have a title problem.

Now, with an owner policy, the title insurer really has risk. You are covered from day one and your coverage even survives the sale of the property. The odds are considerably greater that you will make a claim so they will do a much more thorough search and title correction prior to issuance.

Buy an owner policy. It's money well spent. Don't stop there, though, because owner title insurance is not enough.

No comments: