Title insurance for private lending?

Question

I'm looking at becoming involved with private lending.  I know when someone receives a traditional loan from a financial institution they typically are required to purchase title insurance to protect the lender.  Do private lenders ever also purchase title insurance, either as a requirement from the borrower or just cover the expense themselves?

Tom Gimer · Answer

Private lenders... requiring your borrower to purchase lenders title insurance which insures your interest in the priority position you believe you are lending is a no-brainer basic business decision.

Does that mean it always happens? No. Just the other day a $500k private lender says No, not necessary... I'm trying to make sure my client (borrower) has a successful fix/flip.

I don't care how friendly things appear to be... the shortsightedness of this approach is incredible.

Josh M. · Answer

When funding a deal as a private lender, always require the borrower to obtain title insurance through a licensed title company and make sure that the title company is closing the deal for you. Do not wire funds directly to the borrower.  Also, make sure that you are secured by a lien on the property and are always lending in first position unless you are using an advanced second lien strategy with a reasonable CLTV (combined loan to value).  Always require the borrower to obtain property insurance or builders risk insurance to protect you from unforeseen events.

Kenneth Garrett · Answer

@Hen Ley

Yes I use private lenders and they require a  lenders policy that I pay for.  It’s part of doing business and it’s a  reasonable request.  If you have any other questions let me know.

Account Closed · Answer

As a commercial underwriter, I’ve rarely seen a private or institutional lender forgo a loan policy. When it has happened, it’s usually when the lender already has a mortgage on the property and the amount has been less than 100K. I would recommend both an owners and loan policy. Most states provide simu rates too. If anything order a search and ask for a report of title. After reviewing both you can make an informed decision on whether or not to purchase a policy.

Chris Seveney · Answer

@Hen Ley

Anything we originate on whether it’s 1st or 2nd position we absolutely get title insurance on it. Title insurance claims or lawsuits can take years to resolve and if you didn’t have insurance it can easily cost you $100k especially if it’s someone challenging lien position when asset value has decreased

Raj G. · Answer

both lender's title insurance and owner's title insurance basically is protection against title insurance, so what if buyer just buy "lender's title insurance", and don't buy home owner's title insurance?

Bryan Hartlen · Answer

@hen ley you should also make sure you are recording your loans as leins against the property.

Kyle J. · Answer

I agree with the above posters. As a private lender, you want your borrower to provide you with a lender’s title policy. That’s something that commonly gets paid for by the borrower, not the lender.

Jamie Bateman · Answer

@Hen Ley, Yes, many private lenders require a lender's title policy, which is typically paid for by the borrower. There are certainly more experienced private lenders on here who may chime in, but this has been my experience.

I would guess that as you move more toward the hard-money side (less flexible, more formal) of private lending, having a lender's title policy in place becomes even more of a requirement.

Title insurance for private lending?

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