To properly answer this question it is necessary to first clarify between two distinct types of title insurance: Lender’s Title Insurance and Owner’s Title Insurance.
A lender’s policy is required by most banks and mortgage companies to protect their interest in your property up to the amount of your loan. In the event of an issue with the title, this policy will not cover any equity over and above the loan value and it does not protect the homeowner.
In order for your interest in the property to be protected, you must secure an owner’s title insurance policy. These policies address the homeowner’s liability and provide protection up to the full value of the property.
Not All Title Insurance Is Transferable
It’s tempting to just say no, title insurance is not transferable and it cannot be converted to a new owner to the property. However, different situations affecting the property impact lender’s and owner’s insurance policies in different ways:
- The property is sold – When a property is sold the lender’s insurance policy terminates with the fulfillment of the seller’s loan. Similarly, the owner’s title policy dissolves as the seller relinquish ownership of the property. Neither policy can be transferred or assumed by another party. The buyer must purchase his or her own title insurance policies.
- The property is refinanced – If a home is refinanced and the prior loan is paid off, then the lender’s policy terminates. Your lender will require a new policy on the new loan to protect their investment in the property. However, since ownership has not changed, the owner’s title insurance policy remains in place.
- The property is passed down to an heir – Most owner’s policies lasts as long as you or your heirs own the property. Depending on the terms of your coverage, your policy may also provide warrantor’s coverage after you no longer own the property. If there is still a mortgage on the property, the lender’s insurance policy may remain in effect if the loan is assumed by an heir. However, if the loan is refinanced, the lender’s policy will terminate and new policy will likely be required.
Regulations and requirements may vary widely from state to state. If you are not sure whether or not your policy is transferrable (or under which conditions), be sure to contact your title insurance company for answers specific to your situation.
It is important to note that, generally, title insurance can only be purchased at closing. If a mortgage is involved, a lender’s policy will be mandatory. However, an owner’s title policy is optional and often bypassed, leaving the homeowner vulnerable to liability. If purchasing property, be sure to carefully research your options for an owner’s title insurance policy.