Owner's Title Insurance and What a Seller Can't Do

Before you sign an offer, two title insurance questions come up: which policy protects whom, and who gets to pick the company.

The seller doesn’t choose

Under § 2608 of the U.S. Code, no seller of property that will be purchased with the assistance of a federally related mortgage loan may require, directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company. A seller who violates that is liable to the buyer in an amount equal to three times all charges made for such title insurance.

And there’s a deadline

Under § 2614, an action under that section may be brought in the United States district court, or in any other court of competent jurisdiction for the district where the property is located or where the violation is alleged to have occurred, within one year of the date the violation occurred. Claims brought by the Bureau, the Secretary, a state attorney general or a state insurance commissioner have a longer period.

What lender’s title insurance actually does

The CFPB’s answer is direct. Lender’s title insurance is usually required to get a mortgage loan, and it protects the lender against problems with the title, for example if someone sues to say they have a claim against the home. It does not protect your investment in the home. If someone sues with a claim against your home, the CFPB says, you are the first person responsible, and the lender’s policy only covers claims that affect the lender’s loan.

What an owner’s policy adds

When you buy, you receive a deed showing the seller transferred their legal ownership, or title, to you. Owner’s title insurance protects you if someone later sues and says they have a claim against the home from before you purchased it. The CFPB gives two examples of where such a claim comes from: a previous owner’s failure to pay taxes, and contractors who say they were not paid for work done on the home before you purchased it. Most lenders require you to buy the lender’s policy, which protects the amount they lend, and the CFPB says you may want to buy an owner’s policy to protect your own financial investment.

Shopping for the provider

You can usually shop for your title insurance provider separately from your mortgage, the CFPB says, and shopping could save you money. It adds a wrinkle worth planning around: if you buy owner’s title insurance, the total cost is usually lower when you use the same provider for both the lender’s policy and the owner’s policy than when you buy them separately. So the time to compare is before the lender’s policy gets placed.

The bill at closing

Depending on the state, your settlement agent, lawyer, lender, real estate agent or title insurance company might hand you an itemized list of fees at closing that includes your title insurance cost, and the CFPB says that list could be different from what’s shown on your Loan Estimate or Closing Disclosure. That difference does not necessarily mean you’re being charged the wrong amount. Ask what the difference is when you see it.

Where this lands in a Greater Boston purchase

Massachusetts is an attorney-closing state. The Supreme Judicial Court has held that closing a mortgage-financed purchase requires an attorney acting for the lender to be present and to participate substantively in it, and M.G.L. c. 93, § 70 has that attorney render a certification of title to the buyer and the lender on a purchase money first mortgage of a home of not more than four families that the buyer occupies or will occupy, in whole or in part. A certification of title is not title insurance and doesn’t stand in for an owner’s policy, which is why the choice of policy and provider belongs in the offer rather than on the day of closing. If you want to go through what a particular offer will actually cost you to close, send me the address. I’m Diana Kim, REALTOR with eXp Realty, working with buyers and sellers across Greater Boston in English and Korean. This is general information, not legal advice.