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  • Blue Pointe Title

How Lenders Benefit From Title Insurance

Updated: May 10, 2023


house made of wooden blocks, amortization clipboard, and one hundred dollar bills

When you buy a piece of property, you will be presented with the opportunity to purchase title insurance. While you may view it as just another cost added to your closings, your lender views it as a necessity. In fact, buying a lender’s title insurance may be a condition of the loan itself - without it, your loan won’t fund.


But how do lenders benefit from title insurance? And why are they so adamant about buying a policy at closing?


What is Title Insurance?


Title insurance itself is a means of protection when a new property is purchased. But instead of protecting against future events that may happen down the road - like car or health insurance - title insurance protects against things that happened in the past that you may not know about yet.


A title search is done before purchasing a property. This looks at the history of the property, any title transfers, taxes, and other public records - dating back throughout the entire history of the property. A title search makes sure that the title to it is free and clear of any encumbrances. Title experts are looking for:

  • Mortgages

  • Wills or inheritances

  • Liens

  • Judgments

  • Outstanding taxes

  • Foreclosures

  • Fraud/forged documents

  • Bankruptcies

  • Proper chain of title

  • Easements

  • Encroachments

  • Ownership history

Unfortunately, sometimes things get missed regardless of how thorough and diligent the process is. It could be due to an erroneous recording, a fraudulent document, or even human error. If a title defect turns up after the sale is complete, it could become a threat to your ownership rights as well as your lender’s lien position on the property. And that’s a huge risk. This is where title insurance comes in.


Title insurance works to protect against all of this. Should an issue arise, a claim can be filed with the title company, and they will handle the rest.


Types of Title Insurance


There are two main types of title insurance - an owner’s title insurance policy and a lender’s title insurance policy. An owner’s policy is what protects you in the case of any title defects. And, as the name suggests, a lender’s policy protects the lender. You cannot expect a lender’s policy to protect your rights.


How Lenders Benefit from Title Insurance


A lender is lending you money to purchase a piece of property. Therefore, they want to make sure that they are taking as little risk as possible when doing so. If this is a first mortgage on the property, then they want to be in first lien position so they are the first ones to get paid during a sale and during a foreclosure, for example. Without title insurance, handing over hundreds of thousands of dollars without any safety net is a very risky move.


By requiring you to purchase a lender’s title insurance policy as part of the conditions for your loan, they are comforted that there is a line of security in place just in case. The lender will be protected if any title issues arise up until the mortgage is satisfied. And for them, that’s a huge benefit.


Learn More About Title Insurance


At Blue Point Title Agency, we understand you may have a lot of questions about the home buying process and your closing - such as why do lenders require title insurance? Our experts are here to help. Contact us today at 517-258-1511.


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