Title insurance is an insurance policy that protects real estate owners and lenders against financial loss they may experience because of defects in title to real property. Defects can include such things as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements, covenants, restrictions and other items that are specified in the insurance policy and revealed by performing a title search.
There are two standard types of title insurance policies, one for purchasers/ owners of real estate and one for mortgage lenders:
An Owner’s Policy insures that title to real estate is vested in a purchaser/owner free and clear of any and all liens, defects and encumbrances except those that are listed as exceptions to the policy.
A Lender’s Policy or Loan Policy insures the validity and priority of the lender’s security interest in real estate. A lender’s policy will cover losses in the event that title to the property being mortgaged is not vested in the borrower or is subject to defects, liens or encumbrances not disclosed in the policy.