Title insurance protects homebuyers and mortgage lenders against losses from any issue that affects the ownership rights to a property, e.g., legal disputes, liens and encumbrances, fraud, or missing heirs. Ultimately, Title insurance provides peace of mind during a home purchase
Title companies perform a title search to ensure ensures that the property you are buying has a clear and transferable title
Title insurance is of two types
Owner’s title insurance - provides coverage to the property owner
Lender’s title insurance - provides coverage to the lender. Lenders require borrowers to purchase lender’s title insurance as a condition of the loan
Types of Title Defects
Liens and encumbrances - are claims against the property, e.g., unpaid back taxes
Unresolved legal disputes - over property boundaries or easements that reduce the value of the property of limit access to it.
Fraud - when someone fraudulently sells a property they do not own.
Missing heirs or a conflicting will - when the rightful heirs of a property are not identified or resolved.
The Benefits of Title Insurance
These benefits are for both buyers and sellers, including
Financial protection - against title defects losses, e.g. legal fees and court costs
Legal defense - Title insurance provides legal defense in the event of a title dispute.
Claims process - similar to other forms of insurance to help resolve issues quickly.
How to buy Title Insurance
The largest title companies in the US are First American and Old Republic Title, but the listing agent will typically recommend one to you. An escrow agent initiates the insurance process once an executed purchase agreement is in place. At closing, the parties purchase title insurance for a one-time fee. The cost of owner’s title insurance ranges from $1 to $5K depending on the state, insurance provider, and purchase price.