What Is Title Insurance
Insurance is a subject familiar to most people. Be it your car, health, life, home, travel, etc. insurance is something that helps to keep you or your investments safe. And while these forms of insurance and the companies that provide them are immediately familiar, there are more obscure forms of insurance that people may not have as much interaction with or understanding of. Chief among them would be title insurance. Chances are you’ve seen a title insurance company, or possibly had interactions with one when buying a property, and therefore have some idea of what it is. But since title insurance a relatively limited use product, generally a one off deal when buying a property and even then not in 100% of cases, it can be something people are unsure of. Yet for private lending and trust deed investments, it’s something we deal with on a daily basis.
There are two basic types of title insurance, owners and lender insurance. For our needs, we often utilize lender insurance for our deals. Title companies execute research on properties, going through county records, and investigating any outstanding debts on the property. Title insurance guarantees that the borrower does in fact own the property they’re borrowing against, but also looks for any liens on the property, and ensures that we are in the position we have been led to believe we are in (senior vs. junior loan), and these things go a long way in helping us evaluate a loan.
Why Lender Insurance Matters
The findings of a title company have clear implications for Sterling Pacific, and more importantly, our investors. Going through a title company allows us to protect our investments by ensuring we’re making loans with as much information as possible, and this helps facilitate a more sound underwriting process. But it also helps us protect ourselves and investors from claims of predatory practices and misrepresentation by giving borrowers an independent expert to help review any paperwork being signed.
Problems It Can Cause
Introducing a third party to the equation can slow things down a bit. Running paperwork through an intermediary naturally takes more time than doing it ourselves, but we feel it’s a more equitable solution for borrowers. Having a third party assist in the review of documentation and agreements removes the pressure and impetus of completing paperwork in a loan issuer’s office. Borrowers gain an opportunity to understand what it is their signing by having someone who works in the field explain the matters thoroughly and we avoid any allegations of misrepresentation of agreements. In doing so, we not only protect ourselves, but also account for the interests of the borrower. While this can cause minor delays in the completion of deals, it is a key part in our continuing efforts to find the fairest solution for all parties.