Two Title Policies Are Better Than One

Two Title Policies Are Better Than One

One of the most ridiculous TRID disclosure requirements is the method of showing the cost of title insurance. Because the CFPB only cares about the costs attributable to the loan closing, closing agents are required to set forth the cost of the loan policy on the Closing Estimate as if it were the only policy to be issued at the closing. This results in 1) showing a higher cost for the loan policy than the actual cost, and 2) showing less than the true cost for all title insurance being purchased because the owner’s policy is omitted. The CFPB’s rationale is that the loan policy is required for the loan and the owner’s policy is optional and unnecessary. Is CFPB telling buyers that the loan policy will protect them in the event of a title defect?

That seems to be the message CFPB is sending, even if is unintended. While I could give a technical explanation of the insuring provisions and the coverages by owner’s and lender’s policies, a simple reading of Schedule A of both policies provides the easy answer. Schedule A, Item 1, name of insured, tells the story. On the loan policy, the lender is the insured, not the buyer. Only the lender is covered by the loan policy. Therefore, if there is a defect in buyer’s title and the buyer has not obtained its own title policy, lender will be covered. Buyer will not.

The CFPB title premium disclosures are also legally inaccurate in Florida. The cost of the loan policy in Florida is to be issued at the simultaneous rate where an owner’s policy is issued at the same time and the owner’s policy is greater than the loan policy. Simultaneous rate is $25. The required CFPB allocation of any amount greater than $25 to the loan premium is wrong and legally, uncollectible. The Florida Bar’s Real Property and Probate Law Section has created a separate disclosure to be signed at closing which shows the premium allocation so that closing agents can comply with both the TRID requirements and Florida law.

Owner’s policies should be issued at every real estate closing in addition to loan policies (when applicable) in order to protect the buyer. CFPB’s efforts to protect the consumer are confusing and may have the unintended consequence of buyers attempting to opt out of necessary protections.