Title Insurance
Definition and meaning of Title Insurance in real estate.
Title insurance is an indemnity policy that protects home buyers and mortgage lenders from financial loss resulting from undiscovered defects, liens, or legal claims against a property's title.
In more detail
Unlike most insurance policies that protect against future events, title insurance protects against past occurrences that were not found during the initial title search. Common claims include forged signatures, unknown heirs, boundary errors, or missing municipal assessments. There are two separate policies: a lender's policy, which is typically required to secure a mortgage, and an owner's policy, which is optional but highly recommended to protect the buyer's equity.
The premium is paid as a one-time fee at closing, and the coverage remains active as long as the owner or their heirs hold an interest in the property.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Payment frequency | One-time premium paid at closing |
| Key policies | Owner's policy (protects buyer) and Lender's policy (protects lender) |
| Coverage duration | As long as the owner or their heirs own the property |
Years after purchasing their home, the owners faced a lawsuit from a previous owner's heir, but their title insurance policy covered all legal defense fees.
Frequently asked questions
Is title insurance required?
A lender's title insurance policy is almost always required by mortgage lenders, whereas an owner's policy is optional but recommended.
Who pays for the title insurance policy?
Who pays varies by state and local custom, but it is often negotiated as a seller concession or split between both parties.