Real estate is the nation’s largest market, making the purchase and sale of real property essential to the health of the U.S. economy. These transactions are never without risk, however. That’s why title insurance has been protecting American homeowners for more than 125 years.

So what exactly is “title insurance?” Well, when a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.

Types of title insurance

Title insurance can be purchased for both commercial and residential property. Basically, there are two types of title insurance policies:

Lender’s title insurance: Lender’s title insurance is purchased by the lender (such as banks and financial institution) to avail financial protection against any losses that may arise due to the property’s title related issue

Owner’s title insurance: Owner’s title insurance is bought by the owner of the property to have protection against financial losses that may arise due to invalid property mortgage

When you buy title insurance for your property, a title company searches these records to find – and remedy, if possible – several types of ownership issues. First, the title company searches public records to determine the property’s ownership status. After this search, the underwriter will determine the insurability of the title.

Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So after the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.

If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance. This protects the lender’s interest in your property until your loan is paid off or refinanced.

On the other hand, an owner’s policy of title insurance insures your ownership rights to the property. Even though you’ll pay for this policy only once, your coverage will last as long as you own your home.

Conclusion

As a buyer of real estate property, you’ll want to protect your investment — and the ownership rights that come with it. That’s why it’s wise to purchase an owner’s policy of title insurance in conjunction with the loan policy your mortgage lender will require you to purchase. The loan policy insures the lender against covered title defects up to the amount of the insurance, while an owner’s policy protects your interest in the property.

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