What is title binder?

[Jerone Hammond]

Can someone explain "title binder" when buying a house to rehab? How much does it save in closing? Thanks

[Rob K.]

Technically, a binder is a written commitment by a title insurer to provide future title insurance on a specific property in a specific amount subject to the stated exclusions and conditions in the binder. They are generally for a two to three year period and lock in the current condition of title on the date of the binder. It is a common misconception that binders are title insurance. They are not.

When a rehabber purchases a title binder as part of an acquisition, and then later uses the binder to purchase a discounted policy for the buyer of the rehabbed property, the binder terminates and ceases to exist. The new buyer will be indemnified in the event of a covered claim, but the rehabber, who never actually had title insurance (only a binder that became void when the buyer's policy was issued) will not be indemnified by the title company.

One of the important features of a title policy is being provided the costs of defense when a claim arises. It is important for Rehabbers to understand that if they get dragged into litigation over a title claim, they will not have the benefit of an insurance policy once the binder is used to issue their buyer a policy.