The Common Law

There are two types of title insurance – an owner title policy and a mortgagee title policy. An owner title policy is a contract protecting a buyer of property from financial loss due to a defect in the title that existed at the time the policy was issued. A mortgagee title policy is a contract protecting the lender from a financial loss due to a defect in the owner's title. The mortgagee policy does not provide the owner with any protection but does repay the balance of an owner's mortgage if a claim against the title or property voids his title.

Why do I need title insurance?

An owner title policy protects the buyer from financial loss resulting from prior liens, undisclosed heirs, forged documents, improperly drafted deeds, secret marriages and other misrepresentations of marital status, improperly recorded documents, documents executed by persons lacking legal capacity, fraud, and gaps in the chain of title. These are just a few of the potential risks a buyer faces when purchasing real estate. Without title insurance, a buyer has limited recourse when facing one of the situations listed. Unlike most other forms of insurance, title insurance protects a buyer against things that have occurred in the past.

How does title insurance work?

In preparing to issue a title policy the title company reviews all public records pertaining to the property and the parties, researches any liens filed against the property or the record property owner, and reviews relevant wills, divorce decrees, property agreements, tax records, entity formation documents, and trust agreements. If a problem arises after the policy has been issued, the buyer makes a claim with the title insurance company, which has a duty to pay for financial losses resulting from covered items such as those listed above and to defend the buyer against challenges to title. Although it is not required, buying title insurance is a smart financial move that helps to protect a buyer's investment.