Who Pays for Title Insurance, the Buyer or Seller?

Title insurance protects against financial loss from issues with a property’s ownership history. It ensures the legal right to a property, known as the title, is clear of undisclosed problems. This insurance addresses past events that could affect current ownership, such as unpaid taxes, liens, or errors in public records. It facilitates clear property ownership and smooth real estate transactions.

Understanding Title Insurance Policies

Two main types of title insurance policies exist, each serving a distinct purpose in a real estate transaction.

The lender’s policy, also known as a loan policy, protects the financial institution providing the mortgage. This policy ensures the lender’s security interest in the property is protected against title defects. Lenders typically require this policy as a condition for issuing a loan, and its coverage generally decreases as the loan principal is paid down, expiring when the mortgage is satisfied.

Conversely, an owner’s policy protects the homebuyer’s equity and investment in the property. This policy covers the homeowner against financial loss from title issues that existed before the policy’s effective date, such as undisclosed heirs, forgery, or unrecorded easements. While not always mandatory, an owner’s policy provides ongoing protection for as long as the homeowner or their heirs retain an interest in the property. Purchasing both policies simultaneously can sometimes result in a reduced overall premium.

General Payment Practices

The responsibility for paying title insurance premiums often depends on the specific type of policy.

For a lender’s policy, the buyer almost always pays this cost. This is because the policy is a mandatory requirement from the lender to secure their interest in the property being used as collateral. The cost is typically included within the closing costs.

Payment for the owner’s policy, however, varies and is influenced by local customs, state laws, and negotiation. In some regions, particularly on the East Coast, the seller traditionally covers the cost. Conversely, in many areas on the West Coast, the buyer traditionally assumes this expense. The cost may also be split between the buyer and seller as part of the transaction agreement. Practices can vary significantly by county within the same state.

Factors Affecting Payment Responsibility

Beyond general regional customs, several factors can influence who ultimately pays for title insurance.

Negotiation between the buyer and seller is a significant element, as the payment for the owner’s policy is often a negotiable item within the purchase agreement. Sellers might offer to pay for the owner’s policy as a concession to make their property more attractive to buyers, especially in a competitive market.

The type of real estate transaction can also alter payment conventions. In new construction, the builder or developer sometimes pays for the owner’s title insurance. For foreclosed or Real Estate Owned (REO) properties, the financial institution selling may cover the owner’s policy to streamline the sale. When refinancing a mortgage, the borrower typically pays for a new lender’s policy, as the new loan requires fresh protection for the lender, even though the existing owner’s policy usually remains valid.