What is Title Insurance?

How Does Title Insurance Work?

Before you buy a house, a title company performs a "title search." They comb through public records to verify that the person selling the house actually has the legal right to sell it, and that there are no outstanding liens or claims against the property.

However, public records are not perfect. Sometimes there are hidden defects that the search misses. This is where title insurance comes in. If a long-lost heir suddenly appears claiming they own the property, or if the city discovers unpaid property taxes from 10 years ago, your title insurance policy covers the legal fees and financial losses.

Lender's Policy vs. Owner's Policy

There are two distinct types of title insurance policies:

• Lender’s Title Insurance: If you are taking out a , the bank will absolutely require you to purchase a lender's policy. This policy protects the bank's investment in the property up to the loan amount. It does not protect you.
• Owner’s Title Insurance: This is an optional (but highly recommended) policy that protects your financial investment in the home. If a catastrophic title defect is discovered, this policy ensures you do not lose your down payment and accumulated equity.

What Does Title Insurance Cover?

An owner's title insurance policy typically covers disputes and defects such as:

• Forged documents (e.g., a forged deed or will in the property's history).
• Undisclosed heirs claiming ownership of the home.
• Unpaid contractor liens (e.g., the previous owner remodeled the kitchen but never paid the plumber).
• Unpaid back taxes or unrecorded easements.
• Clerical errors in the public record.

Frequently Asked Questions (FAQs)