Title insurance is a type of insurance that protects property owners and lenders against financial loss due to defects in a property’s title. A property’s title is the legal evidence of ownership, and it includes information about the property’s history, such as past owners, liens, and other encumbrances.
When you buy a property, you want to ensure that the title is clear and free of any issues that could affect your ownership rights. Title insurance helps provide this protection by covering the policyholder (either the property owner or the lender) against financial losses arising from various title-related problems. These problems might include:
- Undisclosed Liens: There may be liens against the property that were not disclosed at the time of purchase.
- Forgery or Fraud: Cases where someone forges a signature on a deed or other legal document, or engages in fraudulent activities related to the title.
- Errors in Public Records: Mistakes or errors in public records that affect the title.
- Unknown Heirs: Claims from previously unknown heirs of a deceased former owner.
- Unmarketability of Title: Issues that make the title unmarketable, preventing the owner from selling the property.
Title insurance typically involves two types of policies:
- Owner’s Policy: This protects the property owner and lasts as long as the owner or their heirs have an interest in the property.
- Lender’s Policy: This protects the lender’s interest in the property as collateral for the mortgage loan. Once the loan is paid off, the lender’s policy is no longer in effect.
It’s important to note that title insurance is usually a one-time premium paid at the time of closing and is different from other types of insurance that require ongoing premium payments. The title insurance company conducts a thorough title search before issuing a policy to identify and address any potential issues with the title.
Having title insurance is a common practice in real estate transactions in many countries, as it provides peace of mind and financial protection to both property owners and lenders.
