I get asked this question a lot in the office. One of the main focuses of my practice is real estate, particularly closing real estate loans. If you have closed on a piece of real estate, you probably were asked at some point whether you wanted title insurance on the property.

Many people have no idea what title insurance is or how it protects a buyer. Generally speaking, title insurance protects against the potentially disastrous consequences of “defects” in the property's title. There are two general types of title insurance policies. One policy protects owners (an owner's policy) and the other protects lenders (a loan policy).

The owner's title insurance policy assures a purchaser that the title to the property is vested in that purchaser and that it is free from all defects, liens and encumbrances except those listed as exceptions in the policy or that are excluded from the scope of the policy's coverage. It also covers losses and damages suffered if the title is unmarketable, or unable to be transferred in the future. An owner's policy also usually provides coverage for loss if there is no right of access to the land. The liability limit of the owner's policy is typically the purchase price paid for the property. As with other types of insurance, coverages can also be added or deleted with an endorsement. There are many forms of standard endorsements to cover a variety of common issues. The premium for the policy may be paid by the seller or buyer as the parties agree. Owner's title insurance coverage lasts as long as the insured party retains an interest in the land insured and typically no additional premium is paid after the policy is issued.

A loan policy is issued only to mortgage lenders. Generally speaking a loan policy protects the initial lender and any future lenders who have purchased the mortgage. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. A loan policy provides no coverage or benefit for the buyer/owner and so the decision to purchase an owner's policy is independent of the lender's decision to require a loan policy.

Many buyers and some lenders think that because a title search has been performed on the property that they do not need title insurance. This is far from the truth. A title search is usually performed by an attorney or a title abstractor and includes searching the probate records for a period of 30 years. While it is always a good idea to get a title search on property, there is not guarantee that what the search yields is accurate. For example, there could be falsified or forged deeds in to record, there could be unrecorded deeds, there could be others who claim an interest in the property but don't have a deed, or the attorney and/or abstractor could have just missed something. In many of these cases, title insurance will work to repair these defects or cover the loss.