TITLE INSURANCE FOR CONSTRUCTION ON VACANT LAND is like icing a layer cake.
You wouldn’t want icing to cover only the bottom layer. Simultaneous Issue of the Owner’s Policy with the Lender’s Policy will make sure there’s enough icing to cover the whole cake.
The Total Purchase Price represents the whole cake. It’s made up of two layers: the purchase of the lot and the home loan.
At the closing table, the Seller is only providing the title policy for the purchase of the lot. Great, awesome, terrific! But that’s not going to cover the home construction loan. If you have a title challenge once your home is built, your Owner’s Title Policy is only going to protect your financial loss up to the lot purchase, not for the construction of the home. If it’s a catastrophic title claim — as in your home was built on the wrong lot, or the seller was a fraudulent seller — you own neither your home nor the lot it’s built on. Then your Owner’s Title Policy will only pay out what you paid for the lot, and the money you paid for the home construction is lost.
Let’s back up to the bright side: at closing, while you’re buying the lot and getting your home construction loan, the title agency can simultaneously issue a policy for only $25 that will increase your Owner’s Title Policy to at least the amount of the home construction loan. It’s a matter of paperwork for the title agency, and $25 from you. The Total Purchase Price of the Lender’s Policy on the construction loan becomes the Owner’s Title Policy amount via Simultaneous Issue.
Sadly, many closing companies forget to disclose this opportunity to increase the Owner’s Title Policy to cover the Total Purchase Price (purchase of the lot plus the construction loan). Maybe these closing companies are lazy, or ignorant, or think they have the buyer’s best interest in mind by “saving” them $25. It’s the difference between the short-term closing, and the long-term value of the property. If you have the vision to build a home, wouldn’t you want title to it fully protected?
Make sure your just desserts are good desserts as you set up your title insurance for construction on vacant land.
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