In the simplest terms, title insurance is protection and comfort. A Title Insurance Policy creates the comfort of knowing that a party's interest, usually as owner or lender, is protected in a real estate transaction.
Title Insurance offers protection from a number of risks that can arise in a real estate transaction. Any of these risks, and many others, can put the owner's or lender's interest in jeopardy or, at the very least, cause problems in subsequent transactions:
- Clerical error (the most common problem and generally the easiest to fix)
- Forgery, fraud, incompetence and incapacity
- Lack of legal access to the property
- "Missing Links" in the chain of title
- Unknown heirs to property due to successions, improper identification of owners, etc.
- Surveyor errors
The two primary types of Title Insurance Policies are Mortgagee's and Owner's:
Mortgagee's - This policy protects the lender's interest in the property up to the amount of the loan; it is always required by the lender. Every time a borrower gets a new loan on a piece of property, a new policy must be purchased. It protects that lender, as to the specific loan, and will terminate when the loan is paid off. The one-time premium is paid at the time of closing the loan.
Owner's - Owner's Title Insurance protects the owner against title defects, for as long as he owns the property, up to the purchase price or value of the property. The one-time premium is generally paid at the time of the purchase of the property; however, owner's coverage can be purchased at a later date. When purchased at the same time as the Mortgagee's Policy (Simultaneous Issue), it is considerably less expensive than when purchased separately.
In addition to either of the above policies is Lien Coverage (also known as M&M or Mechanics and Maintenance Coverage) which provides additional insurance to an owner of lender during the construction of a new home in the event any liens are placed on the property for non-payment of labor or materials during construction.