Title insurance is the only insurance that protects homeowners against a loss due to an unforeseen title defect. Even the most meticulous search of the land records will not uncover all potential defects. These policies protect against a variety of possible hidden title problems including forgery, errors or omissions in a deed, undisclosed or missing heirs, an error by the clerk in the county recorder’s office or a mistake in examining the records. Title defects could make it potentially difficult or impossible for you to sell your home in the future, or they cause you to lose your home altogether.
Title insurance is a one-time purchase that lasts as long as you have an interest in the property. There are two types of owner’s title insurance policies available. A standard policy is based on the sales price of the home at the time of closing, and it does not escalate in value over time. An enhanced policy offers an escalation as the value of a home appreciates. Under an enhanced policy, the homeowner may be able to recover up to 150 percent of the original purchase price should a gap in the title occur. Title insurance will typically cover the policyholder’s attorney and court expenses, or pay for financial loss caused by unknown defects, subject to the policy’s terms and limitations. To help protect your use and enjoyment of the home as well as protect against financial loss, it is recommended that you obtain an owner’s title insurance policy.
In addition to your Owner’s Title Insurance Policy, your lender will almost always require you to purchase a Lender’s Title Insurance Policy to insure their interest in the property. This policy does not protect the buyer. The Lender’s Policy is only applicable to the specific transaction. Therefore, each new lender will typically require a policy specific to their transaction, whether for a purchase or a refinance. The policy terminates when the loan is paid off.