Lender's Policies

A lender’s title insurance policy is required by all traditional mortgage lenders when a real estate transaction occurs and a loan is made. The purpose of this policy is to protect the lender’s interest in the property if a defect, lien or encumbrance on the property is discovered. This type of title insurance policy “follows the loan,” which means that the benefits of the policy will go along with the loan if it is sold to another entity, as is common in the mortgage market. This policy is usually written on a standard form, and generally protects the lender if the title must be taken over (usually through foreclosure) and is deemed encumbered or unmarketable in some way.

It is important for consumers to understand that even though they pay the premium for this kind of title insurance policy, it is not designed for their protection. If there is a title dispute and the insurance is activated, it is only the financial institution holding the mortgage that can make a claim. This is one reason why consumers should consider purchasing an owner’s title insurance policy to protect against any lien or claim that may impair their access to the property in the future. If a title issue comes to light while the owner is still in possession of the property, a lender’s title insurance policy will not provide coverage.

Lender’s title insurance policies are usually purchased at the time the real estate is bought. It is paid for through a one-time premium that lasts the life of the loan. Usually, any costs for a lender’s title insurance policy are included in the closing costs for the mortgage and will be listed on the Good Faith Estimate provided by the lender.

Consumers considering a refinance should note that they may be required to purchase a new title insurance policy when they get the new loan, although sometimes these policies can be obtained at a reduced refinance rate.