Title insurance provides protection against financial loss from title defects or ownership disputes. When purchasing a home, the title, which verifies property ownership, must be clear of liens or legal issues. Title insurance ensures that any undisclosed claims against the property, such as unpaid taxes, pending legal actions, or clerical errors, are covered.
The title search process, conducted by a title company before policy issuance, identifies any existing issues. Once a clear title is verified, title insurance protects both the homeowner and lender by covering legal expenses and potential financial damages resulting from challenges to the property’s ownership.
There are typically two types of title insurance policies: owner's policy and lender's policy. An owner's policy protects the buyer's financial investment in the property, while a lender's policy safeguards the mortgage lender's interest. The cost of title insurance is generally a one-time premium paid at closing, and coverage lasts as long as the owner or their heirs maintain an interest in the property.
Potential risks covered by title insurance include forgery, previously undisclosed heirs, errors in public records, and encroachments. Homeowners should consult with their title company to understand specific coverage details and exclusions. While not legally required, title insurance is highly recommended to ensure peace of mind and financial protection during property ownership.