Although there are several different types of title policies, there are two main ones that are issued most of the time.
Owner’s Title Policy
The owner’s policy insures the owner that the title to the real property is vested in that owner and that it is free and clear from all defects, liens and encumbrances except those that are listed as exceptions in the policy or shown as policy exclusions. It also covers damages or losses obtained as a result of the title being unmarketable. The policy also includes coverage for loss or damage resulting from no access to the land. These are just the basic coverages, there are expanded forms of residential owner’s policies that cover additional risks.
The amount of insurance provided on an owner’s policy is usually the purchase price paid for the subject real estate. Just like other forms of insurance, coverages can also be added or deleted with separate endorsements. There are many forms of standard endorsements to cover a variety of common issues. The premium for the policy is usually paid by local custom for a particular state or county which is usually reflected in the sales contract. You should ask about the approximate cost of a title insurance policy before signing a real estate contract if you are going to be the one paying for it. A real estate attorney, agent, or mortgage lender can provide an approximate cost. You can also use the title premium calculator located on this site.
This is often called a Lenders’ Title Policy and it is issued only to mortgage lenders. Broadly speaking, it tracks the assignment of the mortgage loan, insuring that the policy benefits the purchaser of the mortgage loan should it be purchased by a third party. For this reason, these loan policies are very helpful assisting in the sale of mortgages in the secondary market. The secondary market is made up of high volume purchasers like Fannie Mae and the Freddie Mac as well as private lending institutions.
The American Land Title Association (“ALTA”) title policy and endorsement forms are almost without exception used throughout the country although in some states, certain modifications have been made. Generally speaking, the basic elements of coverage provided to the lender insure against losses occurring from the following matters:
- Title to the insured property on which the insured mortgage is secured by is either
- Not owned by the mortgagor,
- Is Subject to undisclosed defects, liens or encumbrances, or
- There is no legal right of access to the land.
- The lien created by the mortgage:
- is invalid or unenforceable,
- is not prior to any other lien existing on the property on the date the policy is written, or
- is subject to mechanic’s liens under certain circumstances.
As with all of the ALTA forms, the policy also covers the cost of defending insured matters against attack.
The first and second elements are important to the lender because they cover its required condition of title in order to foreclose. The third element relates to items that could interfere with the foreclosure process.
All policies contain certain exclusions and exceptions to coverage that are set forth in the insuring provisions.
Also, there are loan policies that cover single family or one-to-four family residential loans.