Simply put, title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. Each title insurance policy is subject to specific terms, conditions and exclusions.
When a property is financed, bought or sold, a record of that transaction is generally recorded in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also recorded.
When title insurance is purchased for a property (generally paid for by the seller), a title company searches these records to find – and remedy, if possible – several types of ownership issues. The most common item uncovered during this process is a loan that has been paid in full but is still showing up as a lien on the property.
Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. After the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.
If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance. This protects the lender’s interest in your property until your loan is paid off or refinanced. During the escrow process, a preliminary title report is provided for review.
An owner’s policy of title insurance insures the buyers ownership rights to the property. Even though the policy is only paid for once, the coverage will last as long the buyer owns the property.