WHAT IS TITLE INSURANCE?

Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in title to a property. The most common type of title insurance is lender’s title insurance, which the borrower purchases to protect the lender. The other type is owner’s title insurance, which is often paid for by the seller to protect the buyer’s equity in the property.

LENDER’S TITLE INSURANCE

Lender’s title insurance is usually required to get a mortgage loan. Lender’s title insurance protects your lender against problems with the title to your property—for example, if someone sues to say they have a claim against the home. Lender’s title insurance does not protect your investment in the home (your equity). If someone sues with a claim against your home, you are the first person responsible. The lender’s title insurance policy only covers claims that affect the lender’s loan. To protect your equity in the event of a title problem, you may want to purchase an owner’s title insurance policy.

OWNER’S TITLE INSURANCE

Owner’s title insurance provides protection to the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it.

When you purchase your home, you receive a document most often called a deed, which shows the seller transferred their legal ownership, or “title” to their home, to you. Title insurance can protect you if someone later sues and says they have a claim against the home from before you purchased it. Common claims come from a previous owner’s failure to pay taxes or from contractors who say they were not paid for work done on the home before you purchased it.