Title insurance is a type of insurance policy that protects property owners and lenders from financial loss due to defects in a property’s title or ownership rights. When a property is bought or refinanced, a title search is conducted to uncover any potential issues with the title, such as unpaid liens, easements, or claims by previous owners or third parties. Despite thorough title searches, hidden issues can still arise, which is where title insurance comes into play.
Protects Against Title Defects: Title insurance protects against financial loss from defects in title, such as unknown liens, encumbrances, or defects in the title that existed before the policy was issued. These defects could arise from errors or omissions in public records, undisclosed heirs with claims to the property, forged documents, or issues with previous deeds.
Provides Legal Defense: If a covered title issue arises, the title insurance company will provide legal defense and pay for any covered losses, including attorney’s fees and court costs.
Lender Requirement: Most mortgage lenders require title insurance to protect their interest in the property until the loan is repaid. Lenders typically require a lender’s title insurance policy, which protects the lender’s investment in the property if title issues arise.
Owner’s Protection: Owner’s title insurance protects the buyer’s investment in the property and provides coverage for as long as they or their heirs have an interest in the property. This policy protects against losses due to title defects that existed before the policy was issued but were not known at the time of purchase.
Peace of Mind: Title insurance provides peace of mind to both buyers and lenders by offering protection against unforeseen title issues that could potentially disrupt ownership or lead to financial loss.
There are two main types of title insurance:
Lender’s Title Insurance: Also known as a loan policy, lender’s title insurance protects the lender’s investment in the property. It is typically required by mortgage lenders as a condition of the loan. This policy covers the lender up to the amount of the loan if any title issues arise.
Owner’s Title Insurance: Owner’s title insurance protects the property owner’s equity and ownership interest in the property. It is purchased by the buyer and lasts for as long as they or their heirs have an interest in the property. This policy provides coverage for various title defects, including errors or omissions in public records, undisclosed heirs with claims to the property, forged documents, and other issues that may arise with the title.
Title insurance policies are typically issued after a thorough examination of public records to verify the property’s ownership history and identify any potential title issues. If a covered title problem arises after the policy is issued, the title insurance company will provide legal defense and compensate the insured party for any covered losses, including attorney’s fees, court costs, and the value of the property if necessary.
Overall, title insurance helps provide peace of mind to property owners and lenders by protecting their interests against unforeseen title issues that could disrupt ownership or result in financial loss.
