This document discusses various types of real estate insurance. It explains that title insurance protects the purchaser and lender from defects in ownership, and every real estate transaction requires title insurance. It also discusses that homeowners insurance is required by lenders to protect the property from damage, and covers the structure, contents, and liability. Additionally, some situations may require flood insurance or mortgage insurance for small down payments. The document provides details on types of policies including owners policies, lenders policies, and credit life insurance.

1. Introduction to Real Estate Insurance for
Realtors and Mortgage Brokers
Sean Roland
Sean Roland

2. Sean Roland
Insurance requirements have become such an integral part of the real
estate and loan transaction, they must be included in any comprehensive
discussion of real estate finance. Every purchase transaction will require
title insurance, and every mortgage will require homeowners insurance. In
some situations, lenders may also require flood insurance and/or
mortgage insurance. Even purchasers of condominiums and townhouses
will have other insurance options to consider.

3. Sean Roland
Title insurance was devised to eliminate most of the problems created by
abstract attorneys and the abstract opinion. Title insurers examine all the
recorded documents pertaining to a specific property to produce an
insurance policy that covers the purchaser, the lender, or both, from any
defects to the title. Title insurance policies are now fairly uniform, and the
insurance companies have the financial resources to defend and
compensate their insured.

4. Sean Roland
The owner's policy insures a purchaser that the title to
the property was transferred free of any defects,
except those which are listed as exceptions. The
settlement agent will obtain and record the
documents required in the title commitment. In most
real estate transactions, the seller will pay for the
owner's policy. The buyer pays for the lender's policy
and endorsements.
The owner's policy is valid as long as the ownership of
the property remains the same. Transferring
ownership of the property to another ownership
entity, such as a family trust or a spouse by a quit
claim deed may void the title policy. Whenever
possible, the owner should use a special warranty
deed instead of a quit claim deed to facilitate changes
in ownership. This will keep the title insurance intact.
Owner's Policy

5. Sean Roland
Often referred to as a loan policy, this is issued to
mortgage lenders to protect their interest. Typically,
lenders require standardized forms be used. The
lender's policy will guarantee the validity of the loan
documents, and will follow the assignment of the
mortgage or deed of trust when the loan is
transferred.
Lender's Policy

6. Sean Roland
Also referred to as Hazard Insurance, homeowner's
insurance provides protection against damage to real
estate improvements, damage to contents, and
liability coverage. Every time a home is purchased
with a mortgage, the lender requires the owner
(borrower) to obtain property insurance as a condition
of the loan closing. This insurance must be maintained
until the home is paid off. This is a comprehensive
policy that provides coverage for most available perils,
including full replacement of improvements, liability,
temporary living expenses, outbuildings, and contents.
The contents coverage extends to losses away from
the premises, such as in a car or storage unit. The
insurance premiums are usually included as part of
the mortgage payment.
Homeowner's Insurance

7. Sean Roland
Prior to 1968, flood insurance was virtually
unavailable through either the private sector, or the
federal government. Until then, the Federal
Government attempted to control coastal and river
flooding through re-channeling of water, and using
dams and levees to restrict the flow of water. The
dams had the added benefit of producing
hydroelectric power, and providing storage for
irrigation. But the increasing cost of these projects, as
well as the high cost of flood- related damage,
influenced the government to explore offering flood
insurance to reduce the disaster related payments.
Flood Insurance

8. Sean Roland
Mortgage Insurance is provided to enable lenders to
close loans with small down payments. It is usually
required when the down payment for a purchase is
less than 20%. Mortgage insurance is strictly for the
benefit of the lender. In the event of a default or
foreclosure, the mortgage insurance company will pay
the loss suffered by the lender. Typically, when
properties are foreclosed on, the sale price at the
auction is less than the current loan balance. This
difference (along with the foreclosure costs) is the loss
suffered by the Mortgage Insurance Company.
Depending on the situation, the MI Company may
attempt to recover this loss from the borrower. They
can file for a deficiency judgment in court. Mortgage
Insurance is provided by both government agencies
(FHA) and private insurance companies.
Lenders Mortgage Insurance

9. Sean Roland
Title insurance protects both the purchaser and the
lender for hidden defects in the ownership of the real
estate. There are many endorsements that provide the
lender additional protection that are charged to the
buyer. Even though the seller provides the buyer with
clear title, it is the buyer's responsibility to pay the
necessary premium to have the lender included in the
coverage when purchasing a property.
Summary

10. Sean Roland
This is insurance that pays off the loan with the death
of the borrower. This is basically Decreasing Term Life
Insurance, where the benefit amount decreases at the
same rate the principal balance of the loan decreases.
The beneficiary is the lending institution. Very few
mortgage lenders offer this type of insurance, and
even less require it as a condition of the loan.
However, deeds and deeds of trust are recorded and
become public information. Many insurance
companies 'fish' this information, and send notices to
all listed borrowers. They will send out official looking
documents trying to entice the owners to purchase
insurance. These offers are not a good value and
should be avoided.
Credit Life Insurance

11. Sean Roland
Thank You