What Does a Lender’s Policy Cover?
When you buy a house, there is a thing called title insurance that both you as the owner, buyer, or lender can purchase. This insurance will financially protect you from any of the numerous problems that can happen during a real estate purchase. This can be anything from a lien on the property or an ownership document error. If you’re a buyer, you’ll likely need someone, usually a bank, to lend you money to purchase your new home. More likely than not, they will require a lender’s policy.
It’s incredibly rare, if not impossible, to find a reputable lender who doesn’t require the purchase of a lender’s policy, also known as a loan policy. Lenders want you to have a lender’s policy because it protects both parties until you pay off your loan. Also, because you can get a loan for house renovations, you’ll be required to pay for a lender’s policy for that too. In those instances, a lender’s policy may not cover you because you are the owner at that point, and you need an owner’s policy.
What’s the Difference Between Lender’s Policy and Owner’s Policy?
It’s important to note the difference between a lender’s policy and an owner’s policy. They never cover the same person, but there are instances where someone may be required to own both.
As is the name, lender’s policies have to protect the lender and sometimes who they’re loaning to. The lender would be an entity like a bank to protect their investment and reimburse them if a lien or error prevents or stalls the real estate sale.
An owner’s policy pertains to whoever owns the property being sold. If you’re the buyer, you wouldn’t need this. When you’re the buyer, you can sometimes be covered under the lender’s policy with your lender. You would need both policies when you take out a loan to renovate, repair, or add to a property you own.
What Does a Lender’s Policy Cover?
A lender’s policy covers the interests of the lender, which means it’s based on the dollar amount they are loaning you. The lender has more to lose financially, so lender’s policies typically cover a far vaster amount than owner’s policies.
What lender’s policies protect against depends on whether you are the buyer acquiring a loan or the owner. For the buyer, they protect against:
- Debt liens
- Contractor liens
- Tax liens
- Unknown owners or heirs
These are issues that the lender and buyer might see come up during a title search. If the owner is acquiring the loan, the policy protects against some similar problems:
- Contractor liens–gained before and during new construction
- Tax liens–gained before and during new construction
- Unknown servitude, or burden
While liens can be missed by a title search, they shouldn’t be, so more often than not, the lender is protecting itself against any lien you, as the owner, have gained.
Unknown servitude, or burden, is when a service utility requires access, attachments, or tests to be added to your property. Think of a pool or an added extension to your house that needs plumbing and to run a sewer line through your property. This will interrupt your ability to complete construction or pay back your loan, so the lender’s policy will protect against that.
Contact Real Estate Attorneys at MKPV Law
At Mazzoni Karam Petorak & Valvano, we have a licensed title agent ready to assist you with your title needs, whether it’s a lender’s insurance policy or an owner’s insurance policy. To simplify the process, we even have our title insurance provider.
Keystone Abstract Services works with us to help streamline the real estate process for owners and buyers. So, with our Scranton real estate attorneys working by your side, your transaction will go smoothly with little to no issues. There’s no better legal team to make sure your purchase or sale goes as planned and is insured for the worst. Contact us today for more information.