400 Creekside Drive, Suite 407-409 Pottstown, PA 19464

3 Mistakes to Avoid When Signing for Lender's Title Insurance

Monday, June 13, 2022

According to the American Land Title Association, problems surrounding the title come up in nearly 25 percent of real estate transactions. Yet many people don't know what title insurance is. To most, it is just another line item on the list of closing costs standing between them and their dream home.

But title claims can have serious financial impacts, even decades after closing on a home. And choosing the right policy can save them from financial and mental anguish.

It can be easy to be overwhelmed and opt to go with whatever plan is being pushed on you by your contractor, realtor, or mortgage lender. But you could be spending hundreds more for subpar coverage.

It doesn't have to be this way. With a little research, you can become informed on the options and find the coverage that's right for you.

Here are 3 key mistakes to avoid when signing for lender's title insurance. 

1. Not Understanding What Lender's Title Insurance Is For

First of all, what is title insurance and why is it important? 

Title insurance protects lenders and owners from financial losses that result from defects with the property's title. Title companies conduct a thorough check to be sure that the title is clear before a sale can be completed.

Common claims include leans from previous owner's mortgages or back-taxes owed, flawed recorded keeping, or outright forgery of documents.

Your title could be threatened by several unexpected things that don't pop up in the initial process. For example, an ex-spouse who didn't agree to the sale and now claims an interest on the title. Or a lien placed on a previous owner from unpaid child support.

Depending on your coverage, your title insurance may continue to protect you decades after closing on a home. This can save you from being tied up in legal fees or even losing the downpayment and any principal paid on your loan when trouble arises down the road. 

2. Not Purchasing the Right Amount of Coverage 

The amount of coverage you'll need will depend on your specific situation. There are two main factors to consider:

Your Risk Tolerance

Everyone's tolerance for risk is different. Income, liquid assets, and personal taste for financial risk, for example, will all be unique to you.

You'll also need to know the details surrounding the property's history. This way, you can be prepared for the issues the particular property might be more likely to have. Depending on the property, you may feel confident that there won't be any unusual issues and opt for the standard coverage.

It's important to be clear on which issues are not covered by a standard policy. From there, you can determine whether an enhanced policy would make financial sense for you.

Post-policy issues, such as encroachment from neighboring properties or damage from extractions of minerals or water, are generally not covered in a standard policy. As the property owner, this means you will be on the hook for any associated expenses or resulting loss of value. 

As another example: If you have an older home, you may have a "discriminating covenant" on your deed. This can restrict the sale or use of land based on sex, race, etc. Discriminating covenants are also not generally covered in a standard plan. 

An in-depth understanding of your home's history will help you determine what risks your title might face down the road. From there, you can determine what potential financial burdens you may be responsible for by not opting for an enhanced plan. 

Future Plans for the Property

How long do you intend to hold on to this property? Are you planning to pass it on to your descendants? In both of these scenarios, enhanced coverage may make sense. 

If you're planning to keep your property, the value will likely grow significantly from when you purchased it. With a standard policy, the coverage does not grow to reflect that increase in value. In this case, an enhanced policy would be a better move. 

Additionally, standard coverage only covers you as the owner. But an enhanced policy will allow you to pass your coverage along to your heirs. This saves money and protects those you care about from issues that arise down the line. 

3. Not Shopping Around 

There's a lot involved with buying a house. There are big decisions and deadlines, not to mention seemingly endless paperwork. It's tempting to take the easy route and go with whatever title insurance your real estate agent or mortgage provider recommends. One less thing on your mind, right? 

But that person may be thinking about what kickback they'll get from the company they recommend and not have your best interests at heart. 

Maybe they get a bonus from the company for each referral. Or even own the title company themselves, profiting from your willingness to sign. In these cases, it's hard to believe it's your financial interests they have in mind. 

The simplest way to know is to shop around. You have every right to go with the title insurance of your choice. A responsible and trustworthy realtor or mortgage lender will have no problem with you looking to see what else is out there. They should also want you to get the best coverage to suit your needs. 

Ready to Find a Provider? 

Finding the right lender's title insurance provider is essential, but it doesn't have to be complicated. A little research to find the right provider can save you money when it comes time to close. Not to mention give you peace of mind when going through the stressful buying process. 

At Heartland Abstract, we are upfront about our costs and want to provide you with all the information you need to make an informed decision.

Contact one of our agents to talk through your specific situation. We can answer any questions and provide a quote for a policy that covers your needs.

View All Recent Posts