What is the difference between the Owner’s Policy and the Lender’s Policy of Title Insurance? Do I have to pay twice?
The most common forms of title insurance are the owner and lender title insurance policies. The major differences that exist between them is the fact that the owner’s policy protects the owner of the premises and the lender’s policy protects the mortgage lender. Loan policies are generally paid for by the borrower but they insure the lender only. Both the owner’s and lender’s title insurance policies insure against much of the same risk but the loan policy contains additional protections that are designed to address risks associated with the lender’s mortgage lien on the premises.
Now if a lender’s policy has more protections for its insured(the lender) than an owner’s policy does for its insured(the owner), then two questions come to mind. One: Why is the lender’s policy cheaper to purchase than an owner’s policy? Two: Why is an underwriter sometimes more willing to omit an exception from a lender’s policy versus an owner’s policy? To put it simply, an insured under a lender’s title insurance policy is less likely to actually suffer a loss than is an insured under an owner’s title insurance policy. This is because while both title insurance policies would require that there be a title defect which would result in a claim, the lender will only suffer an insured loss if, after foreclosure, the value of the property was less than the outstanding indebtedness on the mortgage loan.
When you purchase both lender’s title insurance for the lender and owner’s title insurance for yourself, you are not paying ”twice”, but you are paying somewhat more. The New Jersey Land Title Insurance Rating Bureau has approved rates specifically for this “simultaneous” situation where both an owner’s and lender’s policy will be issued at the same time. There is a special rate of a flat $25 for the lender’s policy when the borrower purchases an owner’s title insurance policy. The same title is being researched and the same risks are being insured but there is an additional insured party. That is the rationale that is applied when setting the rate.