Good question. It stays in place as long as there is an insured interest to protect. HUH?
Well, a loan policy is issued for a specific mortgage loan. When that mortgage loan ceases to exist, the loan policy coverage stops. That is why you have to buy a new loan policy every time you refinance. That is also why you would likely be getting a reduced rate for title insurance in a refinance transaction. Reissue rates typically apply. If you aren't getting a reissue rate, ask why.
Now, an owner policy for title insurance is different. It lasts a good long time. Not only does it last for as long as you own the property, it also survives the sale and continues to protect you against claims after you have sold the property. Let me give you an example. We just closed this transaction last week.
Our seller had purchased the property in 2004. He bought title insurance through a title agent recommended by a subprime mortgage lender. I'm sure you have been hearing about all the problems with subprime mortgage lending, right?
Well, part of the problem with subprime mortgage lending that many news organizations missed is that they typically referred their customers to CRAPPY title insurers! No way! Yes, way!
We found an inheritance tax issue and asked the seller for a copy of his owner title policy so we could help him start the claim process. He remembers paying for it but can't remember ever getting the policy, SO, we call his title agent.
The CRAPPY title agent identifies the transaction, but can't produce a copy of the owner policy. They want us to call their title underwriter and see if they have a policy. How crappy is that?
Then we find out just how CRAPPY the title underwriter is. THEY acknowledge the transaction, but can't find a policy either. When I ask about the inheritance taxes and whether or not they'll indemnify us so our seller can proceed to close while they go back and fix the problem, they say NO. Even though they can't see a copy of the policy, they are absolutely sure inheritance taxes are an exception to the coverage. BULLOCKS! I have never seen inheritance taxes as a standard exception. It's a rare exception indeed - in fact I have NEVER seen inheritance taxes listed as an exception in title coverage.
So, without coverage in hand - and I recommended that he report these CRAPPY [cough, cough-- Nations Direct and Guaranty Title & Trust--cough, cough] title insurers to the PA Department of Insurance - we looked to the previous owner for relief. Why?
Well, the inheritance tax issue existed before our seller took title. He could go back to the prior owner and make a claim. He contacted her. She has an owner title insurance policy which she was able to fax to me. She put money into escrow for us to hold so we could close and give her time to process a claim through her title insurance company, which I know to be a reliable and reputable company, Old Republic.
Isn't that interesting?
The case raises two good points. First, make a good choice when you pick your title insurance agent. There really IS a difference in quality of product and service. Secondly, make sure you receive your title insurance policy after closing AND keep a copy of it - even AFTER you sell the property.
Oh and BTW, if you need a quick and easy why to spot a potential CRAPPY title agent, most of them use notary signing agents to close their transactions because they are too lazy to do the job themselves. Be safe. Deal with title agents who perform their own closings. They take pride in the work and care about quality, so they are likely to care about you, too.