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What's an owner's policy vs. a bank's policy?

QUESTION:

I’m confused about real estate insurance policies. What’s the difference between an owner’s policy and a bank policy? Do these protect more than the transfer of title?

ANSWER:

In general, a policy of title insurance insures the ownership of an estate or interest in land or the priority and validity of an encumbrance on land. The matters insured against provide invaluable protection to a buyer or lender. Title insurance is considered essential in most types of real estate transactions. With an "Owner’s Policy" a buyer is the insured. In a "Loan Policy," the lender is the insured. The standard policy insures the ownership of the land. In a loan policy, the priority and validity of the lender’s mortgage is also insured. The land’s value is the basis of the charge for an owner’s policy. The loan amount is the basis for a lender’s policy.

A title insurance policy represents the final results of three separate processes. There is first an examination or investigation of the title’s history. Then there must be a determination of the amount of insurance required. Lastly, the insured is given protection against possible title losses.

The elements of risk or chance in title insurance arise from three main sources: 1) errors in searching the records; 2) errors in interpreting the legal effect of documents found in the chain of title; and 3) facts that are external to the public records.

The policy of title insurance insures the correctness of the information obtained from examining the public records. The standard policy does not insure against off-record risks that are discovered only from an inspection of the land. Additional coverage for such matters is available to both lenders and owners. Obtaining a correct survey is the most common method for obtaining additional coverage.

It is a wise buyer who requires title insurance to insure the new ownership. It makes no difference how long the seller owned the property or that the seller received a policy when he or she purchased or that the buyer’s lender is getting a policy. The buyer gets no protection unless he gets an owner’s policy naming him as the insured.

What is a title abstract?

The fact that title insurance agents work to eliminate risks before they develop makes title insurance decidedly different from other types of insurance. Most forms of insurance assume risks. The purpose of title insurance, however, is to eliminate risks and prevent losses caused by defects in title that happened in the past.

Buying a home is a big step both emotionally and financially. With title insurance you will be assured that any valid claim against the property will be taken care of by the title insurer and that the odds of a claim being filed are slim.

This information is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.

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