Explaining Title Insurance To Your ClientDo you occasionally get asked questions about title insurance by your clients? As a QLMS partner, you surely have a working knowledge of title insurance, but check out our more in-depth definition (with examples) below if you want a refresher. The more you empower your clients and keep them informed, the better their mortgage experience will be.
To clients who aren’t familiar with title insurance, it may seem like a nice perk or an extra benefit. In reality, it’s a crucial legal documents for home buyers. It secures the buyer’s investment in the purchased property unlike any other type of insurance and it takes on the central role in the mortgage lending process.
What Title Insurance Is
Anyone who purchases a home receives a title – a claim of ownership to that property – which is physically represented as a written deed. A title allows the buyer to live in, sell or modify a property because it legally belongs to them. Title insurance ensures that there are no outstanding claims or liens on the property, no fraud or errors within the history of ownership, and ultimately affirms that your client’s title will be defended if challenged.
How Title Insurance Helps
You can use the following examples to illustrate to clients how title insurance helps a home buyer.
- The previous owner hires a painter, but neglects to pay for the service. That painter files a lien against the home until the debt is paid. The previous homeowner sells the property to your client, but your client didn’t obtain title insurance. Your client is now responsible for paying the painter, because liens are tied to the property itself. Title insurance would have revealed an outstanding debt before closing and protected your client from that burden.
- Your client purchases a property and the seller dismisses the need for title insurance. “Why wait weeks for middlemen if you have the cash and I have the property?” the seller says. Everything seems perfect: The seller gives them a deed and hands over the keys. A year later, someone shows up at your client’s door claiming they just purchased the home – and shows the client an identical deed. Because your client didn’t get title insurance, they have no proof of ownership. Title insurance would have ensured that the seller can actually sell the property and that the deed is legitimate.
- The state sells your client a property they obtained from a deceased previous owner. Your client decides not to obtain title insurance because the property comes from the government. Years later, the deceased owner’s will is discovered, which grants the property to their child. The child files a claim to obtain the property. Without a title insurance company to back your client’s claim to the property in court, there is a strong chance the property will be given to the family of the deceased, and your client will be left without a home.
Getting Your Own Policy
There are two main types of title insurance policies: a lender’s policy and an owner’s policy. A lender’s policy is only issued to mortgage lenders to cover losses from unforeseen liens, defects and fraud. It doesn’t protect your client (the home buyer) from these issues. Don’t confuse the two and accidentally deny your client their own policy with the belief that a lender’s policy covers everyone. Be sure that your client gets an owner’s policy, which protects the buyer if an issue occurs. Either the seller or buyer (or both) chooses which title company to use, depending on who pays the one-time fee. Use this opportunity to suggest a title company that offers superior service and coverage, like Amrock Inc.
Let your clients know that title insurance is one of the most important purchases they’ll make when they buy a home. Big problems are rare, but they do come up. If your clients have the proper insurance, their home purchases will be protected. It’s a one-time expense that will protect their investment for years to come, as long as they live in their home. It’s peace of mind that’s worth the money in the long term. Have any strategies that you’ve implemented to help your clients fully understand the advantages of title insurance? Let us know by leaving a comment.