Let’s start with a simple definition of title insurance:
Title insurance is a type of indemnity insurance that protects buyers, sellers, and lenders in a real estate transaction from the risk of defects in the title to a property.
Understanding title insurance begins with understanding title, which we talk about in depth here.
One of the most important elements of closing a real estate transaction is understanding what title is being conveyed and whether there is anything that could affect the buyer’s rights to the property. The title search process serves to surface those potential risks.
However, even a thorough title search process may miss something. For example, the best due diligence may not uncover the second will of a deceased owner that was hidden in a drawer of the desk in the upstairs closet. That occurrence could mean that someone else could claim ownership of the property. That’s a bit over the top, and likely very rare, we know, but the idea is that there can be unexpected or unknown issues with a title.
In order to protect against those unknowns that occurred before the time of this transaction, the buyer and seller can obtain title insurance. This insurance pays for losses to the policyholder in the event that a defect in the title appears. Also, unlike other types of insurance, the insurance purchaser pays a one-time premium and holds the insurance for as long as they own or have an interest in the property, rather than paying regularly to keep the insurance in place.
Unlike the rare occurrence we described above, the most common title defects that arise include liens, encumbrances such as easements, improperly filed documents, and similar issues.
There are two basic types of title insurance: owner policies and lender policies. The owner’s policy protects the owner’s title to the property, while the lender policy protects the lender’s security interest in the property.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
