8 Things Every Realtor Should Know about Title Insurance

1. Title insurance is not the same as homeowner's insurance.

Title insurance and homeowner’s insurance protect against two different things. While homeowner’s insurance protects against damage to your home or property, title insurance protects the title (rights to own, sell, or use) for a piece of real property.

While the need for homeowner’s insurance may be obvious to a buyer, the need for title insurance may not. But in the same way that hail or wind can damage a roof, hidden risks can “damage" or threaten a title. These title defects, such as clerical errors, forgery, or undiscovered liens, can impact a homeowner’s ownership rights. If a title defect is discovered after closing, title insurance covers the cost of resolving these issues as well as any associated legal fees.

2. A lender's title insurance policy doesn't cover the homebuyer.

Both are title insurance and protect against hidden risks to the title, but lender’s title insurance provides protection to the mortgage lender while owner’s title insurance protects the homeowner. A lender’s policy (or loan policy) provides no protection to the homeowner.

A standard owner’s policy provides the same protection against hidden risks to the homeowner as it does to the lender; the only difference between these policies is whom it protects. Individuals buying a home with a mortgage loan will need to have both lender's title insurance and owner's title insurance.

3. You still need title insurance - even though you can't close without a clear title.

Although 1 in 4 title searches will uncover title issues that must be addressed before closing, it’s impossible to discover every potential title issue that can impact a property. There are hidden risks to a title for every property.

Title insurance covers these hidden risks, which means they aren’t evident or known at the time of the title search. These can be discovered after closing and range from minor (like unpaid sewer charges) to extensive (such as an undiscovered heir making an ownership claim on an estate purchase). But even minor hidden risks can create a cloud on a title for a new owner.

A standard owner’s policy covers the most common hidden risks, while an enhanced policy extends that coverage to other less likely (but still possible) risks to the title.

4. The contract determines who pays for title insurance.

Each individual real estate contract will stipulate who is responsible for paying for title insurance. For a financed purchase, the cost of title insurance is generally split between the buyer and the seller. For cash purchases, the seller will typically pay for title insurance.

Unlike a homeowner’s insurance premium that needs to be paid annually, a title insurance premium is paid only once at closing. The cost of title insurance depends on the purchase price of your home. Individuals closing in Alabama can calculate the cost of title insurance here.

5. Title insurance provides coverage for as long as a person owns their home.

Lender’s title insurance is in effect for the life of the loan. Coverage for a loan policy decreases along with the loan amount as the balance is paid off.

Owner’s title insurance lasts for as long as a person owns a home. This policy also extends to anyone who inherits the property, serves as the trustee of an estate-planning trust, or becomes a beneficiary of that trust. The owner’s policy is effective whether a person owns their home for a year or seventy years.

6. Enhanced owner's policies provide additional title insurance coverage.

Title insurance coverage is an individual decision. An enhanced owner’s policy covers all of the hidden risks of a standard owner’s policy while insuring against other less common risks, including those that occur after the deed has been recorded. The enhanced policy coverage also increases up to 150% of the home's value over five years after closing, so as the home increases in value, so does the title insurance coverage.

An enhanced owner’s policy is about 10% more expensive than a standard policy. There is a relatively small difference in cost when considering the extended coverage this policy provides. Even if a client chooses not to purchase enhanced title insurance, a standard owner’s policy is always recommended for all home buyers.

7. Filing a claim against your title insurance is simple.

If an individual needs to file a claim, they should contact their underwriter. At South Oak, we use Stewart Title and Guaranty Company and Fidelity National Title Group to underwrite title insurance, and the specific information for a client’s policy should be in their closing package.

The underwriter will gather all of the necessary information to file a claim, and then their counsel will contact the closing company to get all of the information from your file. The underwriter will handle the claim from there. With an owner’s policy, the homeowner is able to be hands-off while the underwriter clears the title issue.

We’re always happy to discuss the process for filing a claim against your title insurance with our clients at closing.

8. It's okay to have questions about title insurance.

Customers who close in our offices are always welcome to contact South Oak with their questions. If you’re ever unsure whether or not an issue is something that needs to be a title insurance claim, you can start by calling the office where you closed. We’ll refer them to their underwriter if a claim is needed.

As a realtor, you don't have to know everything about title insurance, but you should know who to go to when you have questions. You can always contact South Oak Title and Closing with your questions about title insurance.

We love partnering with realtors for education and professional development, and we’re always happy to answer your questions. Contact us by calling your local South Oak office or filling out our online contact form.