“I just received my closing Settlement Statement and notice that there is a fee for Title Insurance on my seller’s side of costs. Isn’t that for the buyer to pay? Who pays for Title insurance?”
Dear Who Pays Title Insurance:
We get this question a lot actually. Why is there title insurance, what is it and who pays for it? So here is a summarized low down.
Title is the instrument by which we hold ownership of real property (real estate). If you have title to a property you own that property. Title insurance is a protection for lenders and homeowners against financial loss resulting from legal defects in or other claims against the property’s title.
In more depth, title insurance insures the owner of real property against loss by reason of encumbrances, defects in title, or adverse claims against title, subject to the exceptions, exclusions, and conditions contained in the policy. Title insurance covers unknown past events and does not prevent an adverse claim from being made but rather indemnifies the owner against loss caused by the claim. For example, if an condo HOA filed a lien against a previous condo owner for unpaid HOA dues, but that lien wasn’t recorded properly and was missed on the title search at closing, that could come up and be an issue against title for the new owner down the road. Not common, but could happen. Title insurance would help protect that new owner in this example.
That covers the ‘what and why’, as for who pays for it, well it depends. Doesn’t it always!? If the buyer obtains a loan, there are 2 title policies issued against the property. The buyer pays for the lender's title policy (which protects their lender and is almost always required by the lender) and the Seller pays for the title insurance policy which protects the buyer of the real estate (called an ALTA Homeowner's Policy). If the buyer pays cash for the condo, there will only be one policy that is paid for by the Seller, on behalf of the buyer.
In the boilerplate language of our standard Purchase and Sale Agreement that we use here in within our Northwest Multiple Listing Service, on page 2 paragraph e. Title Insurance, it does state specifically which party pays for which title policies so that the practice is standardized across all transactions.
By Marco Kronen with Seattle Condo Review: A guide to Seattle downtown condos.