The word title is a collective term for all your legal rights to own, use and dispose of land. Title includes all previous ownership, uses and transfers. In order to insure the transfer of real estate property, a title search must be performed. 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 interest in the property for the amount of the mortgage loan. An owner’s policy typically protects the home-buyer for the purchase price. While a lender’s policy is often required to grant a mortgage loan, an owner’s policy is typically optional.
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 or missing heirs, including spouses
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds executed under an invalid or expired power of attorney
• Liens for unpaid taxes
For a one-time premium you pay during the closing process, 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 are reimbursed for any reduction in the value of the land. For you, it’s a win-win proposition.
A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss or damage caused by the invalid title in the borrower, or loss of priority of the mortgage or deed of trust.
A lender’s policy lasts until the mortgage is paid in full. An owner’s policy remains in force forever, which means the title insurance company would defend the title for you or your heirs even after you no longer own the property.