Quick Facts
Owner vs. Lender policies
When guiding your clients, it's worth understanding the difference between the two types of title insurance. A lender's policy is almost always required by the mortgage company and helps protect the lender's interest in the property for the life of the loan. An owner's policy, on the other hand, is for your client's benefit. It helps protect their ownership rights—their equity—against past issues such as fraud or errors for as long as they or their heirs have an interest in the property. Both policies serve a purpose because they protect different parties with different financial stakes in the transaction.
Is it required in Alabama?
No state law in Alabama mandates title insurance for every transaction. However, as a practical matter, it is almost always part of the process. If a buyer is getting a mortgage, the lender will insist on a lender's policy to protect their investment. An owner's policy is not required by law, but it is a common protection for the buyer's equity that many professionals recommend their clients consider.
Who chooses the provider?
In Alabama, the party that chooses the title insurance provider is often a point of negotiation. There is no statewide rule dictating whether the buyer or seller chooses. Frequently, the party that pays for the policy makes the selection, but this can vary based on local custom and the terms agreed upon in the purchase contract. It's a negotiable item worth clarifying early in the process.
State Regulatory Overview
Regulator and rate regime
In Alabama, the title insurance industry is regulated by the Alabama Department of Insurance (ALDOI). Alabama is a "filed rate" state for title insurance. This means title insurance companies must file their proposed premium rates and any available discounts with the ALDOI before using them. Unlike promulgated-rate states such as Texas or Florida, where a single set of rates applies statewide, each title insurance underwriter in Alabama files its own rate schedule. As a result, premiums for the same transaction value can differ from one underwriter to another.
Rate filings/manuals
While title insurers must file their rates with the ALDOI, Alabama does not publish a single, consolidated official rate manual for public use. Instead, each underwriter maintains its own approved rate schedule. As a real estate professional, you will typically get rate quotes from the title agent or attorney handling the closing, who works directly with these underwriters to provide accurate premium calculations for your clients.
Costs and Rate Structure in Alabama
Rate regulation and discounts
Title insurance premiums in Alabama are primarily based on the home's purchase price for an owner's policy and the loan amount for a lender's policy. Because rates are filed with the state, the base premium for a given transaction value will be consistent for that specific underwriter. Discounts, known as "reissue credits," are common but regulated. An insurer may offer a discounted reissue rate on a new policy if a prior policy exists on the property, but they can require proof of the prior policy and may impose time limits, such as the prior policy being issued within the last 10 years.
Simultaneous issue and reissue/refinance rules
When a buyer purchases an owner's policy and a lender's policy at the same time from the same provider, it's called a "simultaneous issue." This almost always results in a significant discount. The owner's policy is sold at its full rate, while the lender's policy is issued for a much smaller, nominal fee. This is because the core title search and examination work is done once for both policies. Reissue or refinance discounts may apply when there's a recent existing policy, potentially reducing the cost of the new policy since some of the title work has already been done.
Worked premium examples
The following numbers are for illustrative purposes only and do not represent an official quote. Let's imagine a $350,000 home purchase with a $280,000 loan. The base premium for the owner's policy might be around $1,500. If purchased at the same time, the lender's policy could be issued for a simultaneous rate of just $100–$300. If the seller had a valid owner's policy from the last few years, the buyer might qualify for a reissue rate, potentially reducing their $1,500 premium by 20–40%.
Coverage and Exclusions
What title insurance covers
Title insurance helps protect a property owner from financial loss due to problems with the property's title that existed before they took ownership. It may cover issues that a title search aims to uncover but might miss. This includes protection against things such as undisclosed heirs with a claim to the property, forged documents in the chain of title, recording errors in public records, and undisclosed liens or encumbrances from prior owners.
Common exclusions and standard exceptions
It's just as important for your clients to understand what title insurance typically does not cover. Standard policies usually have exceptions for issues that would only be discovered by a new survey of the property, such as boundary line disputes. They also generally exclude problems created by the homeowner after the policy is issued, violations of zoning ordinances, and certain unrecorded liens. Reviewing the policy commitment, especially the exceptions listed in Schedule B, is key to understanding the limits of coverage.
Who Pays for Title Insurance in Alabama?
Statewide convention
Who pays for title insurance in Alabama is always negotiable, but there is a common default pattern. In many transactions, the seller pays for the owner's title insurance policy—effectively providing the buyer with assurance of clear title—while the buyer pays for the lender's policy as part of their mortgage-related closing costs. That said, this is a custom, not a rule, and the actual split is determined by the purchase contract.
Regional payer customs (county/metro)
Because who pays is contract-driven, local market customs play a significant role. In some counties, the seller-pays-owner's / buyer-pays-lender's pattern holds firmly. In other areas, buyers may be expected to cover both policies, or the parties may split costs differently. As an agent, knowing your local customs is valuable, while keeping in mind that it is always a point of negotiation.
Common Endorsements in Alabama
Residential endorsements and when they apply
Endorsements are add-ons that expand the coverage of a standard title policy to help protect against specific risks. For example, an inflation endorsement can be added to an owner's policy to automatically increase the coverage amount as the property value rises over time. Other endorsements might offer protection related to specific zoning issues, access rights, or covenants and restrictions. These are not automatic; they must be requested and may add to the premium. Common situations where endorsements come up include properties with shared driveways or easement access, homes in areas with known zoning changes, and transactions involving properties with HOA covenants. They can provide valuable, tailored protection for your client's specific situation, and it's worth discussing the available options with the title agent or attorney early in the process.
How the Process Works
Who handles closings in Alabama
Alabama is generally considered an attorney-involvement state for real estate closings. While closings can be handled by a title company, an escrow company, or an attorney, Alabama law requires that certain activities—such as examining and certifying title and preparing legal documents like deeds—be performed by or under the supervision of a licensed attorney. In practice, many closings in Alabama are conducted by an attorney, though title companies also play a significant role, particularly in parts of the state where that's the established custom. As a real estate professional, it's worth understanding the norm in your market so you can set expectations with your clients about who will be at the closing table.
Order opening → search → commitment (Schedules A/B) → curative → closing → policy issuance
Once a property is under contract, the title order is opened. The title company or closing attorney then performs a detailed title search of public records. The findings are presented in a title commitment, which is a promise to issue a policy. It's worth having your client review Schedule A (which confirms the facts of the transaction) and especially Schedule B (which lists requirements that must be met and exceptions to coverage). If issues such as liens or judgments are found, the title company works to help resolve them before closing, sometimes in coordination with outside parties. After a successful closing, the final policies are issued to the lender and the new homeowner.
