Title Insurance
Title insurance is a policy that protects property buyers and lenders against losses from defects in title, such as liens, encumbrances, or ownership disputes that existed before purchase.
Exam Tip
Title insurance = ONE-TIME premium, protects against PAST defects. Owner's policy protects buyer, lender's policy protects bank.
What is Title Insurance?
Title insurance protects against financial losses arising from defects in a property's title that existed before you bought it. Unlike other insurance that protects against future events, title insurance protects against past events that may not have been discovered.
Types of Title Insurance
| Type | Protects | Required? |
|---|---|---|
| Lender's Policy | The mortgage lender | Yes (by lenders) |
| Owner's Policy | The property buyer | No (but recommended) |
What Title Insurance Covers
| Covered Defects | Examples |
|---|---|
| Unknown Liens | Tax liens, mechanic's liens, HOA liens |
| Forged Documents | Fake signatures on prior deeds |
| Recording Errors | Mistakes in public records |
| Unknown Heirs | Previously unknown family claiming ownership |
| Boundary Disputes | Survey errors, encroachments |
| Missing Signatures | Incomplete prior transfers |
What Title Insurance Does NOT Cover
- Issues arising AFTER you purchase
- Known defects disclosed before purchase
- Zoning violations
- Building permit issues
- Environmental contamination
How Title Insurance Works
- Title Search: Company researches property's ownership history
- Title Report: Identifies any issues found
- Clearing Title: Seller resolves issues before closing
- Policy Issued: One-time premium at closing
- Coverage: Lasts as long as you (or heirs) own property
Cost of Title Insurance
- One-time premium paid at closing
- Typically 0.5% to 1% of purchase price
- Lender's policy: Usually paid by buyer
- Owner's policy: Negotiable (varies by state)
Exam Alert
Title insurance protects against PAST defects, not future events. Owner's policy is optional but protects your equity. Lender's policy only protects the mortgage amount, not your down payment.
Study This Term In
Related Terms
Escrow
Real EstateEscrow is a neutral third-party arrangement where money or documents are held until all conditions of a real estate transaction are met.
Closing (Real Estate)
Real EstateClosing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.
Lien
Real EstateA lien is a legal claim against a property that must be paid when the property is sold, serving as security for a debt or obligation.
Deed
Real EstateA deed is a legal document that transfers ownership (title) of real property from one party to another.