Real Estate Terms
What Is Title Insurance?
Title insurance protects real estate buyers and lenders against financial losses from defects in a property's title — such as undisclosed liens, forgery, errors in public records, or claims by unknown heirs. Unlike other insurance that protects against future events, title insurance protects against past events that may not yet be discovered.
Two Types of Title Insurance
Owner's Policy
Protects the buyer. Optional but strongly recommended. Covers the buyer's equity and ownership interest against covered title defects. Paid as a one-time premium at closing. Protects as long as the owner or their heirs hold the property.
Lender's Policy
Protects the lender. Required by virtually all mortgage lenders. Covers the lender's interest (the loan amount) against title defects. Decreases as the loan is paid down and expires when the loan is paid off. Does NOT protect the buyer.
What Title Insurance Covers
Forged signatures on prior deeds or documents
Unknown heirs with ownership claims
Errors or omissions in public records
Undisclosed liens (tax liens, mechanic's liens, judgment liens)
Boundary and survey disputes
Fraud by prior sellers or imposters
Does NOT cover defects that arise after the policy is issued
Real Estate Exam Key Points
Title insurance protects against PAST defects — not future events
Two types: owner's policy (buyer) and lender's policy (lender)
A title search precedes every policy — but can miss some defects
Lender's policy is required; owner's policy is optional but recommended
One-time premium paid at closing — no ongoing premiums
Who pays for each policy varies by state and local custom
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