What Real Estate Agents Need To Know About Title Insurance

The job of a real estate agent is complex and varied. It’s not just about matching the right buyer with the right seller at a reasonable price. Instead, real estate agents are called upon to be counselor, de-facto therapist, salesperson, and most importantly, to be a trusted advisor to their clients. Understanding the ins and outs of every part of the escrow and title process plays a pivotal role in that process, and being knowledgeable about what your clients need to know about title and title insurance can make you a more valuable advisor — one they’ll return to again and again to fulfill their real estate needs. 

What Is Title Insurance?

Title insurance is more than just a line on a closing sheet, it provides vital protections for homebuyers and lenders well after the closing date. 

Title insurance protects the insured against a claim that the purported owner of the house does not, in fact, hold clear title to the home. This can be the case for several reasons: a prior owner may have failed to inform an heir of the sale of the property, or an old tax or mechanic’s lien may surface, creating a controversy as to whether the buyer actually owns the home. Title insurance is the only insurance line item that is backward-looking, meaning that it protects only against claims that existed before the buyer purchased the home, but which only surfaced later. If, for example, a prior owner or builder failed to pay a contractor, a mechanics lien might later be revealed that could, in the worst case scenario, force the sale of the home with no recourse for the buyer. For a single payment, buyers and their heirs can expect their title insurance company to provide a legal defense to any claims, and to make them whole in the event that the claim is found to be valid. Claims against title are rare, but potentially catastrophic, so protecting against them can be as vital as any other type of insurance policy.

There are two types of title insurance policies: lender’s title insurance, also called the lender’s policy, and owner’s title insurance, or the owner’s policy. The owner’s policy protects the buyer’s interest in the home, while the lender’s policy protects the buyer’s mortgage lender’s interest in the event of a claim against the purchaser’s ownership interest. In most real estate transactions, only the lender’s policy is required, although both are advised.

Who Pays For Title Insurance?

At closing, the purchaser generally pays for the lender’s policy, while it is customary for the seller to purchase the owner’s title insurance policy. Both policies require only a one-time payment, and provide valuable protections against rare, but potentially devastating claims that could force the sale of the new home. An owner’s title insurance policy protects not only the owner, but many future heirs, against claims or encumbrances that arise after the policy is issued.

There are no hard and fast rules, however, dictating who pays for which policy, and agents should be aware that if the buyer and seller are negotiating closing costs, one party or the other may offer to pay the other’s cost for title insurance as a small incentive to sweeten the deal.

What Should I Tell My Clients About Title Insurance?

Because title insurance does not operate in the same way as other forms of insurance, homebuyers are often confused when it appears as a line item on their closing statement. As with all aspects of the agent/client relationship, communicating with clients early and often about title insurance can help to prevent confusion about the vital protections it offers. 

The title company’s issuance of a title commitment is a great opportunity for agents to discuss the protections afforded by title insurance. The title commitment constitutes the title company’s promise to provide title insurance, as well as an explanation of any terms, conditions, exclusions, requirements, and exceptions to the policy. The title commitment also identifies any specific requirements that need to be addressed prior to closing so that the title policy can be issued. The terms, conditions, and particularly the exclusions will be the same in the title commitment document as in the final policy, so agents and buyers should discuss the specific terms of the commitment, as it outlines both the protections and the exclusions they can expect to see in their final title insurance policy. 

Schedule B of the title commitment is the most important part of the document for buyers to understand. The exceptions and exclusions section in this schedule lists out, with specificity, what will not be covered by the policy. To start, the commitment will have boilerplate language stating that any title encumbrance that occurs between the date of the commitment and the issuance of the policy will not be covered. Other exceptions will be specific to the property and the transaction. Common exceptions include: mining and mineral rights; utility and access easements; and Homeowners Association covenants. Also excluded will be any governmental regulations regarding the use of the property, including government regulations limiting the use of the property or maintenance of municipal utilities on the property, and rights of eminent domain. Explaining and walking through the title commitment with clients is a great way to add value to the many services you’re already providing as their agent.

Learn More With Your Trusted Title Insurance Company

As agents and brokers know all too well, buying a home can be an overwhelming process, especially for new homeowners. We’re here to support you, and your clients, as you work to make sure your clients are protected.

If your clients have questions about what title insurance can do to protect you, what it involves, or how to get it, Landtrust Title Services can help. Landtrust Title was established to fulfill the growing need for partnerships that provide higher service standards and growth opportunities in the title insurance and escrow services industry. At Landtrust, we’re different. We’re customer-obsessed and strive to focus on what you need from start to finish. We strive to deliver service excellence for every real estate transaction. Contact us today at [email protected] or by phone at 312.528.9210 to get answers to all of your questions.

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