Title insurance is a type of insurance policy that protects real estate owners and lenders against financial loss related to defects in the title or ownership of a property. When a property is bought or refinanced, a title search is conducted to ensure that the title is clear of any encumbrances, such as liens, judgments, or claims, which could affect ownership rights. Despite thorough searches, there may still be hidden issues that arise after the purchase.
Title insurance provides coverage for various risks, including:
- Forgery or Fraud: If someone forges a signature on a deed or other legal document, or if there’s fraud in the transfer of ownership, title insurance can protect against resulting losses.
- Undisclosed Heirs or Prior Owners: If a previously undisclosed heir or former owner comes forward to claim ownership of the property, title insurance can help cover the legal costs and potential loss of the property.
- Errors in Public Records: Sometimes mistakes are made in public records, such as incorrect property descriptions or clerical errors. Title insurance can provide coverage for losses arising from such inaccuracies.
- Invalid or Defective Deeds: If there’s a problem with the deed, such as it being improperly executed, or if it turns out to be invalid, title insurance can provide financial protection.
- Liens and Encumbrances: Title insurance can protect against financial losses resulting from outstanding liens, mortgages, or other encumbrances on the property that were not discovered during the title search.
There are two types of title insurance policies: Owner’s title insurance, which protects the property owner, and lender’s title insurance, which protects the mortgage lender. While lender’s title insurance is typically required by mortgage lenders, owner’s title insurance is optional but highly recommended for homebuyers to protect their investment.
Title insurance provides peace of mind to property owners and lenders by offering financial protection against unforeseen issues related to the ownership of real estate properties.
