Title Insurance
Insurance that protects homebuyers and lenders against losses from defects or disputes in a property's ownership title.
What is Title Insurance?
Title insurance protects buyers and mortgage lenders against financial loss from defects in a property's title that existed before the purchase — such as undisclosed liens, errors in public records, forged deeds, undiscovered heirs claiming ownership, or boundary disputes. Unlike most insurance (which covers future events), title insurance covers past events that may not yet be discovered. Lenders require lender's title insurance as a condition of most mortgages; homebuyers are strongly encouraged to purchase a separate owner's title policy. Title insurance is purchased with a one-time premium at closing and provides coverage for as long as the owner or their heirs hold an interest in the property. The title insurance company conducts a title search before issuing a policy.
Example
A homebuyer purchases a house, and title insurance is issued after a title search. Years later, a contractor from the previous owner's renovation files a mechanics' lien — a claim for unpaid work — that predated the sale but was not recorded until after. Without title insurance, the new owner would be responsible for the unpaid debt. With owner's title insurance, the insurer pays the contractor and defends the homeowner's title at no additional cost.
Source: Consumer Financial Protection Bureau — Title Insurance