Legal Definitions - title insurance

Title insurance is a specialized type of insurance purchased when buying real estate. Its purpose is to protect the property owner and/or their mortgage lender from financial loss due to defects in the property's legal ownership, known as its "title," that existed before the purchase but were unknown at the time of sale.

Before a real estate transaction closes, a thorough investigation called a "title search" is conducted to uncover any existing claims, liens, or other issues affecting the property's ownership. Title insurance provides coverage for problems that the title search might have missed, or for hidden defects that could not be discovered through a search of public records. Unlike other types of insurance that protect against future events, title insurance protects against past events that could affect the property's ownership. It is typically paid for with a one-time premium at closing.

• Undisclosed Lien: A couple, the Millers, purchase their dream home. Six months after moving in, they receive a notice from a contractor demanding payment for a new roof installed on the house a year before they bought it. The contractor claims the previous owner never paid and had placed a lien on the property, which was somehow missed during the title search.

  In this situation, the Millers' title insurance policy would step in. It would either pay the contractor to clear the lien, or defend the Millers in court against the claim, protecting them from a financial burden that originated before their ownership.

• Boundary Dispute Due to Survey Error: Sarah buys a plot of land to build her retirement home. Her survey shows the property line extends to a specific old oak tree. A year later, her new neighbor presents an older, previously unrecorded survey that shows the property line is actually several feet short of the oak tree, meaning a portion of Sarah's planned garden is on the neighbor's land.

  Sarah's title insurance would be crucial here. It would help her defend her claim to the disputed land based on the information she received at purchase, or compensate her for the loss of that portion of her property if the neighbor's claim proves valid, covering a defect in the property's legal description or boundaries.

• Undiscovered Heir Claim: John purchases a commercial building from a seller who claimed to be the sole owner. Several years later, a distant relative of the original owner comes forward with legal documentation proving they were a co-owner of the property through an inheritance and that their signature on the deed transferring ownership to John's seller was forged or improperly obtained.

  Here, John's title insurance would protect him from potentially losing his property or from the significant legal costs involved in defending his ownership against this unexpected claim from an undiscovered heir, which stems from a hidden defect in the chain of title.