Title Insurance – it insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Who pays for what part of a transaction’s title insurance is traditional and generally contractual, but in many cases can also be negotiable.
The NWMLS (Northwest Multiple Listing Service) Purchase and Sale Agreement (the offer paperwork we use in the Greater Seattle area) is already pre-written to state that the seller is to pay the premium for an ALTA Homeowners Policy, if available, to insure the purchaser in the transaction. If the ALTA Homeowners Policy is not available, the title insurance company is to provide a standard coverage form of title insurance.
*Note: “ALTA” stands for The American Land Title Association – they are a national trade association of title insurance underwriters and title insurance agents. ALTA has created standard forms of title insurance policy “jackets” (standard terms and conditions) for Owners, Lenders and Construction Loan policies. ALTA forms are used in most, but not all, U.S. states.
NWMLS form 22D (the “Optional Clauses” addendum) allows the purchaser to opt for greater coverage (an ALTA Extended coverage policy) or lesser coverage (an ALTA Standard coverage policy with the additional protection endorsement for homeowners or condominium owners and inflation endorsement) If the ALTA Extended coverage policy is selected, form 22D provides that the purchaser is to pay the increased cost of the premium and the cost of a survey if required in order to provide the coverage.
Please keep in mind that although the Purchase and Sale Agreement forms specify who will pay for the title insurance, this can be negotiated.
The purchaser traditionally pays for the ALTA Extended Loan Policy to insure the purchaser’s lender. This is also negotiable between the seller and purchaser. It is unlikely the purchaser is going to get the lender to pay for the coverage!
Also, keep in mind that in a cash transaction, there is an owner’s policy to insure the purchaser, but there is no loan policy (and therefore no loan policy premium) Likewise, in a seller financed transaction the seller may forgo the issuance of a title insurance policy to insure their Deed of Trust or in some cases, they may opt for the issuance of a standard coverage title insurance policy at a nominal fee in the Puget Sound area.