First, a service known as a title search describes, as well as possible, the condition and quality of the title to the land you are buying. Then, your title insurance protects you against mistakes or threats that might otherwise result in financial loss to you including those hidden, unknown items.
A title search can show a number of title defects and liens, as well as other encumbrances and restrictions. Among these are unpaid taxed, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
However, there are some “hidden hazards” that even the most diligent title search may never reveal. For instance, the previous owner could have incorrectly stated his marital status, resulting in a possible claim by his legal spouse. Other “hidden hazards” include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names and clerical errors in the records. These defects can arise after you’ve purchased your home and can jeopardize your right to ownership.
Your title insurance protection is a permanent assurance that your ownership and use will be defended promptly against claims at no cost to you, whether the claim is valid or not.
There are two basic types of title insurance protection – one for the mortgage lender and one for the homeowner or real estate investor.
If a mortgage lender is to be placed on your new home, the mortgage lender will probably require that you purchase title insurance to protect the institution’s position as a holder of a mortgage loan. But this mortgagee’s title insurance policy doesn’t protect you, the homeowner. You need an owner’s title insurance policy to protect your investment.
You pay only once. There are no renewal premiums, and there is no expiration date on the policy. Yet the protection lasts as long as you, or your heirs, retain an interest in the property.