Title Insurance and Endorsements--Their Impact On Real Estate Closing Costs

When parties are negotiating the purchase terms of a piece of real estate, the discussion may touch on who pays for the title insurance. Whether the seller pays for it, or the buyer, or both, is something to negotiate and I've seen all of those results. One typical result is for the seller to pay for the title examination and commitment, which can run into several hundred dollars, and the buyer pays for the title insurance premium. However, I've also encountered many occasions where the seller assumes responsibility for paying the title insurance premiums.

A nuance to remember when negotiating this point, particularly if you are the seller or represent the seller, is to address responsibility of payment for endorsements to the title policy separately from the base premium. This is particularly important in a commercial setting. The basic title insurance premium is based upon (i) the purchase price of the property for an owner's policy issued when the property is being sold, or (ii) the loan amount, if a lender's policy is issued pursuant an acquisition loan or a refinancing of the property. However, premium costs can rise rapidly however if endorsements are added to the title policy. Many lenders require a laundry list of endorsements to insure away much of the perceived risk on a loan transaction. This is particularly true for conduit (securitized) loans on a commercial property. The closing costs can increase by several thousand dollars as a result.

Whenever I represent a seller on a commercial real estate sale, even if my client is willing to pay for the title insurance, I separate out the endorsements and require that the buyer is responsible for those costs. Whenever I represent the buyer/borrower on a real estate transaction, I work with the lender's counsel and the title company to have as many of the endorsements removed as possible. You are never completely successful in this endeavor, especially in today's financing environment. However, the removal of even a few endorsements can result in significant savings on closing costs and is well worth the effort.