What is Title Insurance and Why is needed?

Title Insurance

Title insurance policy is one of the required key elements in any real estate transaction. I have gathered a lot of information about this and publishing them as series of articles (blogs), due to size, to answer basic questions such as:

What is a title policy and why is needed?  
How many types of title policy are there?
What searches title company conduct and how?
What title policy covers and for how much?
What is Title Commitment?
How much a title policy cost?
What is the Difference between Title Insurance and Property Insurance?

Who selects the title company (seller or the buyer)?

What is Title Insurance and Why is needed?

Title insurance helps provide home buyers and/or mortgage lenders protection against losses resulting from unknown defects in the title to your property that existed before the closing of a real estate transaction.
Those unknown "deficits" could be:

• Outstanding liens on the property (e.g., unpaid real estate taxes by a prior owner).

• Encumbrances (anything that might hinder the owner's right of ownership; e.g., errors or omissions in deeds, undisclosed errors, fraud, forgery, mistakes in examining records).
   

Title companies search the public records to determine if there are title problems that must be resolved before they purchase a property. Title companies’ technical experts are trained to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way, or other encumbrances on your title. Before closing your transaction, the title company will proceed to "clear" those encumbrances, which you do not wish to assume.

When everything is "clear" of encumbrances, the Title Company issues Title Insurance Policies for Homeowner and Lender to protect their interests.

How Many Types of Title Insurance Policies are there?

When there is a mortgage involved in a real estate transaction, two types of Title Insurance must be obtained.

1.        Owner’s Policy

2.        Lender’s Policy