Title insurance is a form of protection purchased during a real estate transaction that safeguards buyers and lenders from financial loss due to defects or issues with a property’s title that were unknown at the time of purchase. These defects can include unpaid liens, encumbrances, disputes over ownership, forged documents or errors in public records. If a covered title problem arises, the insurer covers losses and legal costs up to the policy amount.
In title insurance, a policy is the contract outlining coverage. The premium is the one-time fee paid at closing. Endorsements are optional add-ons that expand coverage for specific risks. Exclusions detail defects or scenarios not covered by the policy.
Title insurance shields you against hidden liens, forged signatures, unknown heirs making a claim, boundary disputes and errors in public records. Without it, a buyer might face costly legal battles or even lose their property.
For buyers, title insurance offers peace of mind by guaranteeing clear ownership. For lenders, it secures loan priority, ensuring that their mortgage remains the first lien on the property.
While few states legally require title insurance, most lenders mandate at least a lender’s policy to protect their investment. Buyers should consider an owner’s policy even if not required.
An owner’s title insurance policy protects the buyer up to the purchase price against defects existing before closing. Coverage lasts as long as you own the property and applies to legal defense fees and loss reimbursement.
A lender’s policy insures the mortgage amount, protecting the lender’s financial interest. It does not protect the buyer, and coverage declines as the loan balance decreases.
Lenders rarely waive their policy requirement. Buyers may negotiate who pays the premium—often the seller in competitive markets—but waiving an owner’s policy is risky and generally not advised.
Title insurance requires a single premium at closing. Once paid, coverage continues indefinitely for owner’s policies and until loan payoff for lender’s policies.
Premiums are based on property value, purchase price, location and chosen endorsements. Higher-value homes or additional endorsements increase the cost.
Rates vary by state and sometimes by county due to regulatory differences. Shopping multiple providers can reveal significant savings.
Lenders often suggest a preferred provider, but you have the right to choose your own title company. Comparing by price and reputation can lower your premium without delaying closing.
Request multiple quotes, review coverage limits and read customer feedback on claim service. A slightly higher premium may be worth it if the insurer has a strong track record of prompt claims handling.
You can negotiate endorsements you don’t need, ask for rate breaks on simultaneous policies (owner’s and lender’s) or request seller contributions toward your premium.
Claims arise when someone forges a previous owner’s signature or uses false identities to transfer title. Title insurance covers defense and settlement costs.
If an heir unknown at closing emerges to claim ownership, your policy covers legal fees and any resulting loss, up to the policy limit.
Clerical mistakes in deeds or court documents can cloud your title. Insurance steps in to clear the title and pay related costs.
If a former owner’s unpaid taxes or contractor liens surface after closing, title insurance pays off the debt or defends you in court.
It covers pre-existing title defects, fraud, liens, easements and boundary issues. Exclusions typically include zoning violations, environmental issues and matters created or known after policy date.
Custom varies by region. In some states sellers pay, elsewhere buyers pay, and in competitive markets costs may be split.
Only a few states legally require title insurance. Most buyers get it because lenders mandate a lender’s policy.
An owner’s policy lasts until you sell; a lender’s policy ends when the mortgage is paid off. Refinancing requires a new lender’s policy but not a new owner’s policy.
Some buyers consider legal opinions or gap coverage, but these rarely offer the breadth of protection and defense resources of a full title insurance policy.
• How Emily’s owner’s policy steps in: Emily closed on her first home only to find a $50,000 contractor’s lien from the previous owner. Her owner’s policy covered the debt and legal defense. • Role of the lender’s policy in protecting her mortgage: The lender’s policy ensured the lien did not take priority over the mortgage, preserving the lender’s security. • Outcome: closing on schedule, no surprise out-of-pocket claims: With both policies, Emily kept her closing date and avoided a major financial setback.
Contact at least three title companies for quotes. Provide purchase price, address and desired endorsements to get accurate estimates.
Ask about rate caps, turnaround times for clearing issues, claim history, available endorsements and any additional closing costs.
Confirm your policy numbers, review the final title commitment, verify all liens are cleared and ensure you’ve selected necessary endorsements. Bring your receipt for the title insurance premium to closing.
