Title insurance “insures” the title of the property. Title insurance makes the title marketable and insures the homeowner against claims to the title. Examples of title issues are claims from prior heirs, instances of bad foreclosures and prior liens such as construction or tax liens.
For example, a friend of mine bought a bank-owned house in Maryland that had been foreclosed on. After she did extensive renovations on the house, it was discovered that the prior foreclosure had been improper. The former owner was not provided with the due process that is required to foreclose a home. This occurred during the housing recession when large numbers of homes were being foreclosed on and there were many instances of process and paperwork errors. Luckily, my friend had title insurance that protected her, and the problem was resolved (and not at her expense).
Most buyers will not buy a house without title being insured. And, the vast majority of lenders require that both the buyer and seller have title insurance. The title policy purchased by the buyer protects the buyer and the lender while the seller’s policy protects the seller.
So for sellers – a seller’s policy is required unless you have a cash buyer, and even cash buyers often want title insurance. There’s nothing that makes it mandatory for the seller to pay for the owner’s policy, however, it is customary and requiring the buyer to pay it would be a disincentive to the buyer. After all, they are already paying for their own policy. I personally have not encountered a seller asking for a buyer to pay for both policies.
Other closing fees fall under recording & transfer taxes and doc stamps and are government fees. The title company that handles the closing and conducts all the liens searches, obtains title policy and holds the escrow funds also has a closing fee of a few hundred dollars. A seller’s title policy is typically $5.75 per every $100,000 of the sale price plus $5.00 per every $1,000. Recording and transfer fees to the seller are typically .70 cents per every thousand dollars. When working with sellers, I provide an estimated closing statement that details these fees.