Like most purchase agreements, AAR’s purchase agreements contain various title protection options for the buyer and their lender. This article provides information about what each title protection option is, as well as how payment for these protections works under the AAR purchase agreements.

This article is for information only and does not constitute legal advice. If you need legal advice, please seek guidance from retained counsel.

The Purchase Agreement Language

The Definitions

Each of the above options offers the buyer or their lender something different. It’s important to understand what each term means so that you can help educate the buyer.

Owner’s Title Insurance: A type of insurance that protects the buyer (owner) from title-related issues, such as unpaid liens from previous owners, fraud, boundary disputes, etc. Owner’s title insurance covers the costs of such issues, including any legal costs, although many policies have coverage limits. It protects the owner for the whole time they own the property. While it isn’t required, owner’s title insurance is highly recommended.

Mortgagee Title Insurance: A type of insurance that protects the lender from title-related issues. Mortgagee title insurance covers the same types of issues as owner’s title insurance, but it only protects the lender. It lasts until the loan is paid off, at which point the lender no longer has a stake in the property. This type of title insurance is typically required when a purchase is financed.

Title Opinion: An analysis, prepared by an attorney, of a property’s current ownership status. A title opinion doesn’t provide any type of protection for the buyer, but it can help them get a better picture of potential current risks with the property’s title. The investigation involved in preparing a title opinion is part of the process to issue title insurance. Therefore, if a buyer requests owner’s title insurance, a title opinion is not required, unless for some reason the buyer desires a separate written opinion.  

Title Abstract: A summary, compiled by an attorney, of a property’s full ownership history. A title abstract doesn’t provide any type of protection for the buyer, but it can help them understand the history of the property and potential areas of concern in the chain of title. The investigation involved in preparing a title abstract is part of the process to issue title insurance. Therefore, if a buyer requests owner’s title insurance, a title abstract is not required, unless for some reason the buyer desires a separate written abstract.  

For more information, see NAR’s article, “What is Title Insurance?” For a printable reminder of the meaning of each term, see AAR’s Definitions Guide.

The Financial Responsibility

Under AAR’s Purchase Agreements, the buyer is responsible for all expenses and costs associated with the property’s purchase, unless the purchase agreement explicitly states that the seller will make a payment toward these expenses and costs.^[1]Therefore, simply selecting an item in Paragraph 14 means that the buyer is requesting that item as part of the purchase and that the buyer will pay for that item.

Example 1: In the example below, the buyer is requesting owner’s title insurance and mortgagee title insurance, and will pay the cost of both.

If the buyer wants the seller to cover the cost of one or more of the title protection options they request, the buyer must specifically make that request in writing.

Example 2: In the example below, the buyer is again requesting owner’s title insurance and mortgagee title insurance. However, unlike Example 1, the buyer has requested that the seller pay the cost of the owner’s title insurance policy. If agreed to by the seller, this means that the buyer will cover the cost of the mortgagee title insurance, while the seller will cover the cost of the owner’s title insurance.

^[1]A seller’s payment toward expenses and costs can be structured in one of two ways: (1) the seller can agree to pay a flat dollar amount or percentage, to be applied toward any eligible expense; or (2) the seller can agree to pay the cost of specific expenses.