What Is a Lender’s Policy in Real Estate?

🏦 What a Lender’s Policy Covers

A lender’s policy protects against title problems that could threaten the lender’s lien position. It’s typically required whenever a mortgage loan is issued.

• Errors or omissions in public records
• Unknown liens or judgments against the property
• Undisclosed heirs or ownership disputes
• Forged or fraudulent documents
• Recording mistakes or boundary issues

If a covered issue is discovered after closing, the title insurance company may pay legal fees or reimburse the lender up to the outstanding loan balance.

🔍 Lender’s Policy vs. Owner’s Title Insurance

It’s important to understand how a lender’s title insurance policy differs from an owner’s title insurance policy and why both may appear in your closing paperwork.

• The lender’s policy only protects the lender’s financial interest (the loan amount). It does not cover the homeowner’s equity.
• The homeowner can choose to buy a separate owner’s title policy for full protection of their ownership rights.
• Both policies rely on information discovered during the title search, which confirms ownership history and checks for liens or claims.
• Premiums and title insurance details appear on the Closing Disclosure provided before settlement.

While both are forms of title insurance, the lender’s policy safeguards the bank’s investment—not the homeowner’s.

📅 When It’s Required and Who Pays

Most mortgage lenders require a lender’s title policy as part of closing. It’s typically a one-time premium paid at settlement and based on the loan amount. The policy remains in effect until the loan is paid in full.

In many states, it’s customary for the buyer to pay for the lender’s policy, while the seller may pay for the optional owner’s policy. However, this varies by state and can be negotiated.

📋 How It Relates to the Title Search

Before any title policy is issued, the title company performs a detailed title search to uncover issues such as prior liens, judgments, or ownership claims. The search helps determine whether the title is clear and insurable.

Once verified, the title company issues both the lender’s and owner’s policies, ensuring that all parties are protected against past defects in ownership.

📍 Brokerless Guidance

At Brokerless, we guide FSBO sellers through every step of the closing process. While title insurance is usually handled by your title company or closing attorney, understanding these policies helps you make informed decisions at settlement.

We always recommend reviewing your Closing Disclosure closely to confirm that lender and title fees are correctly itemized.

Understand Your Closing Like a Pro

Title insurance can be confusing, but Brokerless makes the process transparent. List your property FSBO on the MLS and take full control of your sale while our team helps you navigate the details confidently.