In short, title insurance protects against problems affecting the title to your home. You may think having a serious problem with your title is rather remote, but, in fact, title companies find problems in 25% of their title searches. Common problems are liens against the property from unpaid sub-contractors, unpaid property or income taxes or judgment holders. Other issues that can cloud title that are not so easy to detect include forged signatures in the chain of title, recording errors, undisclosed easements and title claims by missing heirs or ex-spouses.
There are two types of title insurance—an owner’s policy and a lender’s policy. When you obtain a new loan, the lender will require you to purchase a lender’s policy. A lender’s title policy protects the lender’s interest in the property should a problem arise. It does not cover the owner’s equity in the property, and will not pay the homeowner’s legal expenses if there is a problem. Only an owner’s title insurance policy will protect the homeowner. Owner’s title insurance is optional, but it protects the homeowner by paying claims and legal fees should a problem arise with the title of a property. Owner’s title insurance is purchased for a one-time fee at the original purchase and provides coverage for as long as you own an interest in the property or provide financing for a subsequent buyer. It also covers any liabilities you have under the title warranties you make when you sell the property.
A title insurance policy is your protection against loss of your rights to the property. When you consider that your home is probably your most valuable asset, title insurance makes fnancial sense.