Home Buying in Los Angeles>Question Details

Cameron Wu, Both Buyer and Seller in Los Angeles County, CA

How do Owner's Title Insurance and Lender's Title Insurance work together?

Asked by Cameron Wu, Los Angeles County, CA Tue Sep 11, 2012

It is my understanding that Lender's title policy is required and protects the value of the loan for the note holder. It follows ownership of the note holder and one of its primary uses is part of the reps & warranties when the mortgage company sells the note to the secondary mortgage market (Fannie, Ginnie, etc). The coverage goes down as principal is reduced on the note.

Owner's title, as far as I know, is usually for the purchase price of the home and is optional. However, the coverage exists in its full amount as long as you retain an interest in the property.

So let's say there's a property with a purchase price of $200k. Owner puts down $40k and obtains financing for $160k. Lender's policy is for $160k and Owner's policy is for $200k. Is this a double whammy to the insurer if there's a defect in title that they missed? It seems that owner's policy covers a redundant amount that the lender's policy already covers. This is something I've always been confused about!

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Neal Grusky’s answer
Douglas nailed your answer, cant be put any better.
Getting higher rents here too!


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0 votes Thank Flag Link Sun Sep 16, 2012
This is a good question for consumers and agents to understand it.
There are two types of insurances, CLTA and ALTA. They provide two different coverage basically CLTA is for the title protection for example against forgery, and ALTA is for boundaries, encroachments, etc. Therefore, it is not a double whammy.
0 votes Thank Flag Link Thu Sep 13, 2012
The Lender's policy insures that the property is actually yours free and clear and as such has value as a security device. The Owner's title insures that the Seller is handing over free and clear title with whatever rights and obligations exist on the property.

Lenders generally require a title policy to protect their interests. As a buyer you want the title policy to insure you received what you paid for. And the Seller generally prefers a policy because he/she is protected from any past item surfacing. Since they are protecting different parties they are different policies. Further by having different policies it spreads the risk which often lowers the cost.
0 votes Thank Flag Link Tue Sep 11, 2012
Why not buy owner's policy for $40k coverage? Is it because it fails to cover the change in equity of your home as you pay down the principal / market value goes up?
0 votes Thank Flag Link Tue Sep 11, 2012
If you purchase an owner's policy only for your equity portion (i.e. $40K in your example) you would have no protection when the principal balance of the loan is paid down and the amount of your equity is increased.
Flag Wed Sep 12, 2012
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