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What Is Title Insurance?

Title insurance protects property buyers and mortgage lenders against defects or problems with a title when there is a transfer of property ownership.

If a title dispute arises during a sale, the title insurance company may be responsible for paying specified legal damages, depending on the policy.

Issuing title insurance is a two-part process. First, the title company or attorney researches records to make sure there are no undisclosed heirs to the property, unpaid taxes, pending legal action, errors, fraud or other problems with the deed.

Put simply, the title must be clean, verifying that the seller really does own the property and is free to sell it.

Next, the title company contracts with an underwriting company to issue an insurance policy that will pay for your defense if anyone challenges your title, and compensate you for your equity if you lose.

Homebuyers typically need two title insurance policies: an owner’s policy and a lender’s policy, which protects the lender.

Here are some questions a homebuyer should ask about title insurance.