How to Know if you Need Title Insurance in PA
As a lawyer handling real estate transactions, as well as a title insurance agent for Fidelity National Title Insurance Company, buyers often ask me if I really “need” to buy title insurance. The answer, like most legal issues, is not as clear…in essence, it depends!
Quite simply, the answer to the question “Do I need title insurance?” is dictated by your lender if you are financing the purchase price of the property. Quite simply, a “conventional lender” is almost always going to require title insurance as a condition of obtaining the loan necessary to either purchase the subject real estate or to refinance any or all of the indebtedness (i.e. loans, judgements, etc.) associated with the subject real estate. The conventional lender is going to require that the borrower purchase title insurance with coverage at least equaling the amount of the loan, as the lender is going to want insurance that their loan is secured by a mortgage against the proper real estate parcel, the mortgage is recorded against the proper real estate parcel, and the lien position of the mortgage is in, usually, first position. For example, you may be buying a $200,000 property and financing $150,000 of that purchase. As a result, the conventional lender will require that you buy title insurance with a coverage for the lender in at least the amount of the mortgage (i.e. $150,000). The borrower/ buyer does not have to purchase $200,000 worth of title insurance; just enough title insurance coverage to insure the $150,000 mortgage. However, the cost of buying the additional $50,000 worth of title insurance, for a total of $200,000, is nominal and the $200,000 title insurance policy will cover both the owner and the lender.
There is always a chance that the lender will not require title insurance; however, almost all “conventional lenders” (i.e. banks, mortgage companies, etc.) will require title insurance. A “private lender” (i.e. investor, family member, friend, etc.) may not bother requiring title insurance. When we represent private lenders, we always recommend that they require that the borrower, as a condition of the loan, purchase title insurance as we want to make sure that our client’s loan is a secured mortgage that is in first position and is properly recorded against the correct real estate parcel. However, that private lender certainly has the option of not requiring title insurance.
What If I Pay with Cash?
Finally, someone buying real estate with “cash” (i.e. not requiring any kind of financing) does not “need” title insurance. That “cash buyer” has the option of buying title insurance. However, we almost always recommend that the buyer purchase title insurance as it is a relatively nominal expense in the overall context. This is one of the biggest purchases you will make in your lifetime and the title insurance company will handle the entire transaction, the settlement agent will conduct closing, etc. The only time that it makes sense to not buy title insurance is when you are getting ownership of a piece of property as a gift from a family member (i.e. grandma gifts her home to you, your parents transfer ownership of their investment property to you, etc.).
Do I “need” title insurance? Hopefully, the above makes it clear that you only “need” title insurance when you are dealing with a conventional lender; when not, you should still purchase title insurance with few exceptions (i.e. a gift from a family member).
Do you have additional questions regarding title insurance in PA? Contact OWM Law today.