When selling a home, the closing costs the seller has to cover can seriously cut into his eventual profit. One of the things the seller may need to pay for is title insurance.
In some states, the home buyer customarily pays for both the lender’s and owner’s title policies, whereas in other states the responsibility for buying the owner’s policy falls on the seller. What many people don’t know is that who pays for title insurance is actually a negotiable term that can be included in a real estate contract.
Now, I would like to clarify one point — if a buyer takes out a mortgage to finance the purchase of his home and his lender requires title insurance, he should pay for the lender’s title policy, and not the seller.
To help you make an informed decision, let’s analyze the purchase of an owner’s title policy from both the seller’s and buyer’s perspectives.
If You’re the Seller
By offering to pay for the owner’s policy, you’re proving that you have nothing to hide (e.g. there are no liens or judgments filed against your home) and provide the buyer with a clear title to the property. This would be a nice gesture on your part, especially if the buyer offers the full asking price.
If you already have an owner’s policy for the property you wish to sell and decide to purchase a new policy for your buyer, you may qualify for a reissue rate. Concisely, the reissue rate allows you to pay a lower premium for the same level of coverage. In addition, you can negotiate the add-on fees. Even in the states where title insurance is highly regulated, insurers can add a series of ancillary fees (e.g. copy fees, title search costs, courier charges, etc.), which can be negotiated on a case-by-case basis.
If You’re the Buyer
Requiring the seller to pay for title insurance can help you avoid part of the closing costs. But under certain circumstances, it may be in your best interest to pay for the owner’s title policy.
Let’s take repossessions as an example. As the buyer, you get to pick the insurance company that will research the title. Not only can you save hundreds of dollars on the policy – this is very important particularly in the states where insurance providers are allowed to set their own rates – but you can also require title agents to go back beyond the issuing date of the current title policy.
Conversely, if the lender selling the foreclosed property pays for the owner’s policy, he may require the insurer to research the public records only over the time of his ownership. Though the owner’s title policy offers protection against different title clouds once issued, several defects may remain hidden.
A major problem is that the standard owner’s policy doesn’t cover certain title clouds (e.g. rights of parties in possession, encroachments, encumbrances and liens not appearing in public records). If any claims arise from these faults at a later date, the insurance company won’t reimburse you for your loss. To get protection against these defects, you need extended coverage. However, there is a possibility that the insurance provider will include additional exceptions.
As one of the largest independent, ALTA-certified title insurance companies, Guardian Title & Trust, Inc., provides a complex mix of title-related solutions, including title examination, insurance, escrow and closing services, for residential and commercial real estate purchases. To speed up your home buying process and obtain an adequate title policy, we invite you to contact our experienced title insurance agents at (904)-992-1162.