Title Insurance
What Is Title Insurance?
Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. The most common type of title insurance is lender's title insurance, which the borrower purchases to protect the lender. The other type is owner's title insurance, which is often paid for by the seller to protect the buyer's equity in the property.
KEY TAKEAWAYS
- Title insurance protects lenders and buyers from financial loss due to defects in a title to a property.
- The most common claims filed against a title are back taxes, liens, and conflicting wills.
- A one-time fee paid for title insurance covers pricey administrative fees for deep searches of title data to protect against claims for past occurrences.
How Title Insurance Works
A clear title is necessary for any real estate transaction. Title companies must do a search on every title in order to check for claims or liens of any kind against them before they can be issued.1
A title search is an examination of public records to determine and confirm a property's legal ownership and to find out whether there are any claims are on the property. Erroneous surveys and unresolved building code violations are two examples of blemishes that can make the title "dirty."1
Title insurance protects both lenders and homebuyers against loss or damage occurring from liens, encumbrances, or defects in the title or actual ownership of a property. Common claims filed against a title are back taxes, liens (from mortgage loans, home equity lines of credit (HELOC), and easements), and conflicting wills. Unlike traditional insurance, which protects against future events, title insurance protects against claims for past occurrences.1
A basic owner's basic title insurance policy typically covers the following hazards:
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