Introduction

Lenders routinely require title insurance to reduce lending risk. The lender’s title policy protects the mortgagee’s interest in the property until the mortgage is paid off, covering legal costs and losses if a covered title defect surfaces after closing. For borrowers, knowing what lender protections are required helps avoid surprises at closing and protects the loan process.

(Author note: In my 15+ years advising lenders and borrowers, I’ve seen title insurance resolve claims that would otherwise delay or derail a closing — for example, curing a late-discovered tax lien without forcing the buyer to re-negotiate financing.)

Sources: Consumer Financial Protection Bureau (CFPB), American Land Title Association (ALTA), and the National Association of Insurance Commissioners (NAIC) provide searchable guides and checklists on title insurance and typical lender requirements (CFPB: https://www.consumerfinance.gov; ALTA: https://www.alta.org).

How lender title insurance works

  • Title search: Before issuing a lender’s policy, a title company or attorney performs a title search of public records to identify liens, judgments, easements, encumbrances, or recording mistakes.
  • Clearance and exceptions: The title search may reveal issues that must be resolved (e.g., unpaid taxes) or listed as exceptions to the policy.
  • Policy issuance: If the lender accepts the title condition, the title insurer issues a lender’s policy that protects the lender’s interest up to the loan amount.
  • Post-closing claims: If a covered title defect later causes loss, the policy covers legal defense and loss amounts up to the policy limit.

Key point: Lender’s title insurance protects only the lender’s lien position, not the buyer’s equity—unless the buyer also purchases an owner’s policy.

What lenders typically require

Most mortgage lenders require a lender’s title insurance policy as a condition of funding. The requirement stems from the lender’s need to secure the loan collateral (the property). Typical lender requirements include:

  • A current lender’s title insurance policy naming the lender as the insured party.
  • A title search and issuance of a title commitment before closing.
  • Resolution of any defects the lender deems material (e.g., outstanding liens, judgments, tax delinquencies).

Lender policies stay in force until the mortgage is satisfied or paid off. The lender’s interest is protected for the amount of its outstanding loan balance.

Lender’s policy vs owner’s policy (what each covers)

  • Lender’s title policy: Protects the mortgage lender’s interest in the property (up to the loan amount). It is usually required by lenders and the premium is commonly paid once at closing.
  • Owner’s title policy: Protects the property owner’s equity and legal interests for as long as they own the property. This policy is optional but recommended. Unlike the lender’s policy, the owner’s policy compensates the owner for covered losses and legal defense costs.

Because lender’s policies protect only the lien, buyers who want long-term protection for their investment should buy an owner’s policy as well.

(If you want a deeper primer, see our detailed guide: How Title Insurance Protects Mortgage Lenders and Buyers.)

Who pays for title insurance and when?

Customs vary by state and local practice. In many U.S. markets the buyer pays for title insurance at closing (sometimes split between buyer and seller), but lenders require the lender’s policy regardless of who pays. Key rules:

  • The title insurance premium is typically a one-time fee paid at closing; it is not recurring.
  • Both owner’s and lender’s policies can be issued at the same time, often at a reduced bundled cost.
  • State regulations and local custom affect whether buyers or sellers customarily pay; always confirm who pays in the purchase contract and settlement statement.

CFPB guidance notes that title insurance is usually a separate line item at closing and consumers should review the closing disclosure for cost details (CFPB: Understanding Title Insurance).

Common title defects and lender concerns

Lenders worry about claims that could reduce or eliminate the collateral value. Common title concerns include:

  • Unpaid property taxes or municipal liens
  • Unreleased mortgages or liens from previous owners
  • Fraudulent deeds or forged signatures
  • Undisclosed heirs or ownership disputes
  • Recording errors and boundary disputes

Some issues can be cleared before closing; others may remain as policy exceptions. If an exception is material to the lender, they will usually require resolution before funding.

For details on lien-related exceptions and how they affect closings, see Title Insurance Exceptions for Liens.

Common exclusions and limits — what title insurance does not cover

Title insurance protects against many historical defects but commonly excludes:

  • Defects listed as exceptions on the policy (e.g., recorded easements, covenants)
  • Zoning violations, regulatory compliance, or building code violations
  • Environmental pollution or soil contamination (unless specifically covered)
  • Issues created or agreed to by the insured after closing

Read the policy’s “exclusions and exceptions” section carefully. If a problem later arises that fits an exclusion, the insurer may decline the claim.

Typical cost ranges (2025 context)

Title insurance costs vary widely by state, purchase price, and insurer. As of 2025:

  • Owner’s policy: Often ranges roughly from 0.5% to 1.0% of purchase price in many states, but can be billed as a flat fee depending on local rate schedules.
  • Lender’s policy: Typically lower than the owner’s policy; many lenders’ policies cost a fraction of the owner’s premium and are based on the loan amount.
  • Examples: On a $300,000 home, an owner’s policy might fall in the $1,200–$3,000 range depending on state rates; a lender’s policy could be several hundred to a couple thousand dollars.

State insurance regulators or your title company should provide a rate sheet. The National Association of Insurance Commissioners (NAIC) and ALTA provide guidance on pricing and state variations.

NOTE: These are general ranges—actual premiums depend on state rules, purchase price, and negotiated or prepaid rate schedules.

How to shop and verify title insurance

  1. Ask for the title company or escrow provider’s name early in the contract stage.
  2. Review the title commitment for exceptions and required curative actions.
  3. Compare the total closing costs (including title) across quotes — not just the premium.
  4. Ask about the insurer’s claims history and local title agent reputation. A responsive claims team matters.
  5. Confirm who is named as insured on the lender’s policy and that policy limits match the loan amount.

Tip: Because title work is local and records are state- or county-based, choose a company with local experience. In my practice, a thorough pre-closing clearing of encumbrances saved buyers time and prevented loan delays.

Real-world examples (brief)

  • Example A: Undisclosed tax lien. A buyer closed on a foreclosure home. After closing, an unpaid county tax lien surfaced. The lender’s policy covered legal costs and loss up to the loan amount while the title insurer cured the lien.
  • Example B: Forged deed. A prior deed was later proved to be forged. Because the lender had a title policy, the mortgage lender was protected while the insurer worked to quiet title and resolve losses.

Common mistakes and how to avoid them

  • Mistake: Assuming lender’s policy protects the owner. Fix: Purchase an owner’s policy if you want protection for your equity.
  • Mistake: Not reading the title commitment. Fix: Review exceptions and ask the title agent to explain curative steps.
  • Mistake: Choosing a title company only by price. Fix: Balance cost with reputation and claims-handling experience.

Frequently asked questions

Q: Is title insurance required by law? A: No federal law requires title insurance, but mortgage lenders generally require a lender’s policy as a condition of the mortgage.

Q: Can lender’s title insurance be canceled? A: The lender’s interest ends when the mortgage is paid in full. You can get a release or satisfaction recorded.

Q: Should I always buy owner’s title insurance? A: If you want long-term protection against historic defects to your ownership interest, an owner’s policy is recommended.

Professional disclaimer

This content is educational and not legal or financial advice. State rules and contract terms vary. For advice tailored to your situation, consult a licensed real estate attorney, title professional, or your mortgage lender.

Authoritative sources

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(Last reviewed: 2025).