Who pays for title insurance when selling a home: the buyer or the seller? The answer depends on the customs and practices of each individual state.

Q: Is it mandatory for a seller to pay for title insurance in Oregon especially if they were sole owner of home from the day it was constructed?

A: We don’t know of any particular law that states that a seller or buyer must pay for title insurance when it comes to selling or buying a home. The question you’re really asking isn’t about whether there is a law that requires you to buy that title policy. It’s about whether it is the custom and practice in Oregon for a seller to pay for an owner’s title insurance policy.

Many title insurance companies print out guides that show whether the seller or buyer in an area is generally obligated to pay for the owner’s title insurance policy. In Oregon, the custom and practice appears to be for the seller to pay that fee.

Let’s take a step back, however, and talk first about title insurance and why a seller would purchase an owner’s title insurance policy. An owner’s title insurance policy reassures a buyer that if there is a title claim to the home in the future, a company will step up and back the owner.

For example, a home buyer wants to know that the seller has the right to sell the property, that when the buyer takes title to the property, all prior mortgages will have been paid off and that there are no undisclosed title defects on the home. The title company issuing an owner’s title insurance policy reassures the buyer that if the seller didn’t (for some reason) have the right to sell the home, the title company will reimburse the buyer for any money they paid for the home up to the policy amount. Likewise, if the title policy missed an easement or other contains another issue that affects title to the home, the title company may have to pay money to clean the title or resolve the issue, up to the damages incurred by the buyers, but not over the policy limit.

We always recommend that a buyer obtain title insurance. If the buyer is using a mortgage to purchase the property, the lender will require a title insurance policy that names the lender and is for the amount of the loan. But savvy buyers will also purchase an owner’s title insurance policy at the same time (or receive one purchased for them by the seller).

When you buy a car and receive the certificate of title from a state agency, you know you have good title. But real estate is more complicated. There are times when family members buy from one another (and don’t record deeds) or other situations happen where a buyer may not know if you are the rightful owner of the property and what mortgages or liens might affect the title to the home.

Even if you could undertake a search of public records, research the seller, and mine all the information available, you might miss something. And, the risk is pretty big – a house is far more expensive than a car.  This is why you want to have an owner’s title insurance policy.

But there are plenty of issues title insurance doesn’t cover: foundation problems, bad heating systems, faulty plumbing or other things that come up after closing. If the seller had work done on the home and a contractor wasn’t paid and filed a lien, that might not show up in the title search, but title insurance would protect the buyer in most situations.

We think that title insurance is worth it. And, just about every lender will require you to pay for a lender’s title insurance policy when you buy a home. Remember, the lender’s title policy on the home will cover the lender for any loss on title issues but not the home buyer. Generally, when an owner’s and lender’s policies are issued at the same time, you’ll get a discount on the second policy. Sellers may not care that the buyer gets a discount on the lender’s title insurance policy, but the buyer won’t want to pay for both policies where the custom is for the seller to pay for the owner’s policy and the buyer pays for the lender’s policy

Which brings us back to what you’ll wind up paying for. You can always negotiate who pays what in your sales contract, and if your area is in a strong sellers market at the moment, you the buyer might have to shell out for the policy. But, know you’re bucking custom. Just as there are customs for paying these fees, there are customs for paying all kinds of fees when you sell or buy residential real estate. A buyer generally has to pay the cost of inspecting the home but the buyer could ask the seller to pay for that expense. If the custom in the area is for the buyer to pay that cost, you, as a seller, will take the buyer’s offer with a different perspective and in a different light if the buyer is asking you to pay for costs that the buyer should otherwise pay.