What is title insurance? First, the word title is a collective term for all your legal rights to own, use, and dispose of land. Title includes all previous ownership, users, and transfers. To legally transfer real estate property, a title search must be performed and, in most cases, the title must be found free of any circumstances that could endanger your right of ownership. Title insurance protects against the possibility of future loss should your legal rights to your property be challenged.
There are two types of title insurance: a lender's policy and an owner's policy. The lender's policy protects the lender's insterest in the property for the amount of the mortgage loan. An owner's policy protects the homebuyer for the full property value. While a lender's policy is often required to grant a mortgage loan, an owner's policy is typically optional. However, it is customary for the seller to provide an owner's title policy to the buyer.
What does an owner's policy cover? An owner's policy protects your interest in the property against such hidden hazards as: mistakes in recording of legal documents; forged deeds, releases or wills; undisclosed heirs, including spouses; deeds by minors or persons of unsound mind; liens for unpaid taxes; and fraud.
For a one time fee paid at closing, your title insurer assumes responsibility for all legal expenses to defend the title to your property if it's ever challenged. If the defense is unsuccessful, you're reimbursed for any reduction in the value of the land.
How long does title insurance coverage last? A lender's policy lasts until the mortgage is paid in full. An owner's policy remains in force as long as you or your heirs have an interest in the property. If challenges to title arise after the property has passed to your heirs, the title insurance company would defend the title for them just as it would for you.
Homeowner's insurance protects your investment against physical hazards like fire and theft, but it doesn't cover your most precious possessions - the security of your title to the property. Title insurance is the only way to ensure complete protection.
Information provided by LandAmerica and Charter Title.