Saint Louis, MO · Member since 2009 · 168 posts · 40 votes
Hello BP friends,
I am closing on a house next week and receiving private financing from a family member for the purchase. The title company is going to record the deed of trust, but are saying that their underwriter is requiring a "mortgage policy". My question is, is the mortgage policy basically title insurance for the lender? Is this even neccesary? I think they are just trying to nickle and dime me...
Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
14y
Sounds like a lenders policy, as a hard money lender I believe it to be best practice to cover your lender for the full loan amount. It is an additional fee, but it insures your family members retirement against any potential title defects up to the full loan amount (assuming it is beyond your purchase price). If the money is coming from a retirement account be sure you get the wire ordered with plenty of time to spare, every custodian is different in how quickly they move. Don’t forget to get your hold open policy for resell.
Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
14y
Sounds like a lenders policy, as a hard money lender I believe it to be best practice to cover your lender for the full loan amount. It is an additional fee, but it insures your family members retirement against any potential title defects up to the full loan amount (assuming it is beyond your purchase price). If the money is coming from a retirement account be sure you get the wire ordered with plenty of time to spare, every custodian is different in how quickly they move. Don’t forget to get your hold open policy for resell.
Saint Louis, MO · Member since 2009 · 168 posts · 40 votes
14y
Originally posted by Travis Sperr:
Sounds like a lenders policy, as a hard money lender I believe it to be best practice to cover your lender for the full loan amount. It is an additional fee, but it insures your family members retirement against any potential title defects up to the full loan amount (assuming it is beyond your purchase price). If the money is coming from a retirement account be sure you get the wire ordered with plenty of time to spare, every custodian is different in how quickly they move. Don’t forget to get your hold open policy for resell.
It sounds weird to me because lets say something happens that triggers the policy to pay out to me for some kind of title issue. Well I am still liable for the loan, and I would use the proceeds to pay off the loan..
Real Estate Lender · Wheat Ridge, CO · Member since 2009 · 113 posts · 59 votes
14y
I would be intersted in what title people have to say but I would never expect there to be a payout from a title insurance claim. Noramally when there is a claim the title company pays to defend your position and not actually cut you a check. you will still need to make payments on your loan during this. The lender policy covers several things but the main thing it does is insures the lenders lien position. This is very important when loaning to someone you dont know because title companies often delay recording the deed of trust and other liens can be recorded during the gap. For your situation it might be less important but I would still do it.
Saint Louis, MO · Member since 2009 · 168 posts · 40 votes
14y
Originally posted by Kevin Amolsch:
I would be intersted in what title people have to say but I would never expect there to be a payout from a title insurance claim. Noramally when there is a claim the title company pays to defend your position and not actually cut you a check. you will still need to make payments on your loan during this. The lender policy covers several things but the main thing it does is insures the lenders lien position. This is very important when loaning to someone you dont know because title companies often delay recording the deed of trust and other liens can be recorded during the gap. For your situation it might be less important but I would still do it.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
14y
You say that you are getting private financing from a family member, but that there will be a deed of trust. A deed of trust suggests that the lender is recording a lien on your property. Are you giving the family mamber a mortgage on the property as security for the loan you are receiving?
If so, then by all means, purchase lender's title insurance, and at the same time purchase an owner's title policy for yourself.
In the event you lose the property due to a defect in the title, the lender's title insurance protects the lender from financial loss while the owner's title insurance lets you recoup your equity.
Even if you were not using any financing to purchase the property, you still want owner's title insurance. Buying both the lender's title insurance and the owner's title insurance at the same time gets you a package discount on the total cost of the insurance.