A form of indemnity insurance that takes effect at the closing of a sale, title insurance protects lenders and home buyers from financial loss associated with defects in the title to a property.

Title insurance protects only against past events and occurrences.

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There are two types of title insurance.

• Lender’s title insurance, which the buyer is required to purchase, protects the lender for the amount of the mortgage principal. Coverage declines, however, as the mortgage payments are made. The average cost of the one-time fee is around $1,000, but it varies state by state and depends on the price of the home.
• Owner’s title insurance, which is optional and can either be paid for by the buyer or the seller, protects the purchaser’s equity in the property for the duration of ownership. The owner’s policy may include an optional market value endorsement, which covers increases in the property’s value.

A one-time fee, it generally runs $500 to $3,500 depending on the state, the insurance provider and the price of the home, and coverage is usually equal to the purchase price of the home.

Title insurance protects lenders and home buyers from financial loss associated with defects in the title to a property. Photo: Cytonn Photography

When the lender’s title insurance and the owner’s title insurance policies are bought at the same time, the total cost may be reduced.

Title insurance is used even when new homes are purchased because it protects against defects previous owners of the land may have created.

When properties are sold, title companies search public records, including deeds, mortgages, divorce decrees, court judgments, tax records and child-support orders, to verify the property’s ownership and to check whether there are any liens, claims or judgments, against the property. Despite this research, sometimes, things, such as fraud, remain undetected, which is why title insurance is used.

If issues arise, the title company will try to resolve them before the closing of the sale. If they are significant enough, they can halt the sale.

Issues include unpaid back taxes or construction costs, conflicting wills, ownership by another party, incorrect surveys and unresolved building-code violations—all obligations that the new owner would be responsible for without the protection of title insurance.

Title insurance is issued by four major underwriters: Fidelity National Financial, First American Title Insurance Co., Old Republic National Title Insurance Co. and Stewart Title Guaranty Co.