Promissory Note Investing Tips - Avoid Taking The Hit - The Lender's Title Insurance Policy

What is a Lender's Title Insurance Policy? A Lender's Title Insurance Policy, sometimes referred to as a loan policy, is issued by a title insurance company for the benefit and protection of the promissory note holder.

What Protection Does it Provide? It protects the note holder against mechanic's lien claims, unrecorded liens, unrecorded easements and access rights, back taxes, unrecorded mortgage liens including home equity lines of credit, conflicting wills related to the property, forged deeds and releases, forged wills, false impersonation of the true property owner, documents executed under invalid or expired powers of attorney, misrepresentation of wills, deeds by minors or by someone of unsound mind, or by someone representing themselves as single, and recording mistakes.

What Other Important Information Does It Provide? The policy clearly indicates the rank or the position of the mortgage lien. It shows if it is in first position, second position, etc.

This information is critical.

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Does the Lender's Title Insurance Policy Protect the Borrower? No. This type of insurance is called an indemnity policy; it only protects against the lender's loss.

Who Pays for the Lender's Policy? It is customary that the borrower pay for the Lender's Policy.

When Does the Lender's Insurance Protection Begin? Its protection starts at the inception date of the policy and relates back from that date. Auto insurance, homeowner's insurance and life insurance all pay for claims arising from the inception date going forward---in the future. The Lender's protection protects against losses that arose prior to the inception date of the policy. The duration of protection is indefinite. The one, initial premium provides coverage until the loan is repaid.

Will the Lender's Title Insurance Policy Guarantee that the Lender Will Be Able to Sell or Collect on the Note? No. It will not prevent loss of marketability or collectability due to a title claim. If a claim arises, you probably will not be able to sell the note until the claim is legally settled. After the claim is settled, the note holder should be a good position to sell or collect on the note.

How Important to You, the Note Holder, is the Lender's Title Insurance Policy?

In order to avoid numerous title landmines, Lender's insurance is necessary. You, as the lender, should not consider title insurance optional. As the promissory note holder, you should make certain that every note you originate or purchase is protected by a Lender's Policy.

Putting it all Together. During the 35 + years that I have been involved in the promissory note industry as an investor, broker and appraiser, the lack of the Lender's Title Insurance policy has been the number one impairment; it has been the primary cause of the reduction of the "Fair Market Value"; it has caused the largest discounts to be applied.

Risk comes from not knowing what you are doing. If you do what successful people do, you will eventually get the same results that they do. And, if you don't, you won't.

You can avoid taking the hit by insisting on the Lender's Title Insurance Policy on every promissory note you buy or originate.