Who Pays for Title Insurance on a Reverse Mortgage?
Key Takeaways
- The borrower pays for the Lender's Title Insurance policy at closing.
- This policy protects the bank from undisclosed liens or ownership disputes.
- The cost varies wildly by state but is typically $1,000 to $2,500.
When you close on a reverse mortgage, you will see a massive line item on your closing disclosure for "Lender's Title Insurance." Many seniors are confused by this, assuming that because they already bought title insurance when they originally purchased the house 30 years ago, they shouldn't have to pay for it again.
Unfortunately, the real estate industry does not work that way.
Owner's vs. Lender's Title Insurance
When you bought your home, you likely purchased an Owner's Title Insurance Policy. This policy lasts for as long as you own the home and protects you if someone claims they have a legal right to your property.
When you take out a reverse mortgage, the bank is giving you hundreds of thousands of dollars and using your house as collateral. The bank needs a guarantee that they are in the "first lien position"ā€”meaning no other creditor can take the house before they do.
Therefore, the bank requires a brand new Lender's Title Insurance Policy. This policy strictly protects the bank, not you. However, as the borrower seeking the loan, it is your responsibility to pay the premium for it at closing.
What Does Title Insurance Protect the Lender From?
The title company will do an exhaustive search of county public records before the loan closes. They are looking for: - Unpaid contractor liens (Mechanic's Liens). - Undisclosed second mortgages. - Delinquent county property tax liens. - IRS federal tax liens. - Fraudulent deed transfers involving estranged family members.
If the title company misses one of these, and the IRS suddenly forecloses on the home, the title insurance policy will reimburse the reverse mortgage lender for their massive financial loss.
The Cost
The cost of a Lender's Title Policy is regulated by the state, not the federal government. Depending on where you live and the value of your home, expect this fee to range between $1,000 and $2,500. Like almost all reverse mortgage closing costs, you do not have to write a check for this; it is simply rolled into the starting balance of the loan.