What is Title Insurance?
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. While other types of insurance focus on possible future events, title insurance protects against loss from hazards and defects already existing in the title to a property. Examples of defects include improperly executed documents from a previous sale or a lien against a previous owner.
Over half of all real estate transactions have a problem somewhere in the chain of title. Title insurance companies find these issues and assist in taking corrective action to enable the transactions to go through and allow customers to have peace of mind about their new home purchase.
What is a Lender’s and Owner’s Policy?
Generally, title insurance falls into two broad categories – policies insuring the mortgage lender and the homeowner. The lender’s policy protects the lender’s interest in the property as collateral for the mortgage loan and provides coverage up to the loan amount. The owner’s policy protects the homeowner’s interest in the property and provides coverage up to the purchase price of the property.
The lender’s policy is familiar to most homeowners and relocation programs, as virtually every mortgage lender will require the buyer to purchase a lender’s policy as a condition of financing the transaction. Therefore, it is generally a covered expense under most relocation policies for destination purchases.
The purchase of an owner’s policy, on the other hand, is rarely a financing condition or a closing “requirement.” Transferees often must decide whether to use out-of-pocket funds to purchase an owner’s policy to protect their property interest. Under certain circumstances, relocation policy coverage of owner’s title insurance may protect the employer’s long-term investment in their transferee in a highly cost effective manner.
Owner’s Title Insurance in Relocation
Owner’s title insurance provides two distinct benefits to transferees and employers:
1. Protects the transferee from many title problems with their new property that may distract from their job responsibilities and could potentially cause significant financial hardship
2. Can save significant uncertainty and expense if the transferee is subsequently relocated again, and title defects are discovered on the property
This second benefit is important to consider because it shows how owner’s title insurance can support the goals of a relocation home sale program. To be eligible for a home sale program, the property must have clear title so that it can be acquired by the relocation company for resale. Any title defects that either existed before the transferee’s purchase or arose during their ownership must be resolved before acquisition.
For example, if a title search uncovers an unreleased mortgage from a prior owner, the title clearance process could take weeks or months – particularly if the lienholder has changed ownership or is no longer in business. This will, at best, delay the acquisition and could potentially disqualify the property from the home sale program.
If the employee purchased an owner’s policy, he or she could file a claim with the title insurance company. If the title defect is covered by the owner’s policy, the title insurance company will likely agree to either issue a policy to a subsequent buyer or indemnify the buyer’s title insurance company. While the specific outcome will depend on the circumstances, this may reduce the title clearance process from months to days.
The Value of Owner’s Title Insurance
Owner’s title insurance is paid for at closing with a one-time premium that insures homeowners for as long as they own the property. The owner’s policy is available at significantly discounted rates in many states when purchased at the same time as the lender’s title policy.
Title insurance premiums are highly regulated and thus vary widely by state, so it can be difficult to compare the cost of owner’s title insurance in different states. Recent federal regulation, which created the new Loan Estimate and Closing Disclosure, requires title insurance to be disclosed in a consistent manner nationwide. This new disclosure will often show that the actual additional expense of owner’s title insurance is less than expected, and should help employers and their relocation service providers make informed decisions about whether it represents a reasonable expense for the benefits it provides. Considering the importance of the asset being protected, title insurance is probably the best value among the majority of home purchase closing costs.
Owner’s title insurance provides a sense of security to transferees, employers and relocation service providers, helping enable successful transfers and improve the broader mobility program. Transferees can rest easily knowing that they are protected from a number of hidden title problems that could cause significant losses. Many mobility professionals can attest to owner’s title insurance significantly improving the transferee’s experience, and in some cases, saving their home sale benefits on a subsequent transfer. Ultimately, owner’s title insurance may represent a cost-effective benefit for corporate mobility programs.
Stewart Title Relocation Services is a BristolNet Partner, assisting Bristol’s clients with their Title Insurance needs. Eric Arnold is Counsel for Stewart Title Relocation Services. Since joining Stewart in 2008, he has led a number of initiatives to educate Stewart associates and customers on best practices for a range of legal and industry topics. In addition to handling Stewart Title Relocation Services’ contractual and regulatory matters, Eric works closely with Stewart’s local offices and underwriters to resolve complex transactional matters. He currently serves as Chair of the Worldwide ERC® Real Estate and Mortgage Forum and received his Senior Certified Relocation Professional designation in 2016.