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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