Title Insurance

Last Updated 9/21/17

Title insurance can help provide the home buyer and/or the mortgage lender necessary protection against losses resulting from unknown defects in the title to your property that occur prior to the closing of a real estate transaction.

Unknown defects in a title, such as any outstanding liens on the property (e.g., unpaid real estate taxes by a prior owner) or encumbrances (anything that might hinder the owner’s right of ownership; e.g., errors or omissions in deeds, undisclosed errors, fraud, forgery, mistakes in examining records), can result in additional costs in the future or even invalidate a home buyer’s right of ownership in the property, and might also invalidate the lender’s security interest in the policy. Title insurance policies will cover the insured party for any covered losses and legal fees that might arise out of such problems.

Title insurance agents/companies search public records to develop and document the chain of ownership of a property. If any liens or encumbrances are found, the title company might require that the home buyer take steps to eliminate them before issuing a title policy. Title insurance agents might also hold money in escrow and perform closing services for an additional fee.

How Does Title Insurance Work?

Title insurance policies are indemnity policies — typically, they protect against losses arising from events that occur prior to the date of the policy, which is the date of closing. This is unlike other types of insurance policies, such as auto or life insurance, which protect against losses resulting from accidents or events that occur after the policy is issued. A title policy is usually paid for with a one-time premium that is handled at the closing of the real estate transaction.

Who Needs Title Insurance?

  • Lenders — If a mortgage is obtained in order to purchase property, nearly all lenders require that the home buyer purchase the lender’s title insurance policy for an amount equal to the loan. A lender’s policy is issued to a mortgage lender. The policy provides the lender protection from covered losses arising from any previously unknown defects in the title that have become known only after the insured property has been financed. The lender’s insurance policy will remain in effect until the amount financed has been repaid, the property is resold or until refinancing has occurred.
  • Owners — Either the home seller or the home buyer may buy an owner’s policy. In many areas, sellers pay for owner title policies as part of their obligation in the transfer of title to the home buyer. The party paying for the owner’s policy can be negotiated during the purchasing process. An owner’s policy is issued to a home buyer, and provides the home buyer protection from covered losses arising from any previously unknown defects in the title that existed at the time of purchase, and became known only after ownership of the property was acquired. An owner’s policy remains in effect as long as you own or maintain an ownership interest in the insured property.

The Title Insurance (C) Task Force studies issues related to title insurers and title insurance producers. In 2014 the NAIC adopted the “Title Escrow Theft and Title Insurance Fraud Whitepaper." In 2015 the NAIC adopted the “Title Insurance Consumer Protection Fund Guideline” and the “Survey of State Insurance Laws Regarding Title Data and Title Matters, November 2015.”