Some people wonder why they need to get title insurance if their lender already has a policy on the mortgage. The type of insurance that title and escrow companies offer to homeowners, however, is different from the lenderís insurance. Title holders must get separate insurance to protect themselves from any claims against the property they have rightfully purchased.
The lenderís policy protects against the amount of the loan, and not the value of the property, which is why homeowners get their own insurance. Title holders must worry about the event of such a claim, as there are no provisions for legal expenses of an uninsured party in the lenderís title insurance. When a loan policy is being issued, the small additional expense of an ownerís policy is a bargain compared to the legal costs of defending the home against a claim. This is why title and escrow companies are so important for homeowners.
Some homeowners might think the amount of title insurance the mortgage company has for the loan will be sufficient, but if a distant relative of the previous owner suddenly claims that they have rightful ownership of the property, it could be a problem. Without the assistance of title and escrow companies to back them, home buyers might have to forfeit their property and lose whatever amount they paid in mortgage and down payments. They must also pay for their own legal expenses if they donít have insurance, which is why itís better to be safe than sorry.