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Buying & closing

Title Insurance

Also called owner's title policy, lender's title policy

In short

Title insurance protects a buyer or lender against losses from ownership problems that existed before the purchase, such as undisclosed liens, forged documents or recording errors. It is paid once at closing.

Paid
Once, at closing
Two policies
Owner's and lender's
Covers
Past title defects
Who pays
Varies by state and deal

Owner's vs. lender's policy

A lender's policy is required by almost every mortgage lender and protects only the lender's loan. An owner's policy is optional in most places and protects your equity for as long as you or your heirs own the property.

What it covers

Before issuing a policy, the title company runs a title search. The policy then covers defects the search missed or that couldn't be found, such as forged signatures, unknown heirs, undisclosed liens, or errors in public records. It doesn't cover issues listed as exceptions in the policy.

Title insurance on foreclosures

Properties bought at a foreclosure auction may come with a trustee's or sheriff's deed and unresolved liens, and some title insurers won't issue a policy right away. Bank-owned (REO) homes usually come with insurable title, but bank deeds often give limited warranties, so an owner's policy matters more.

Example

A missed lien after closing

A buyer purchases a home for $275,000 and pays a one-time owner's policy premium at closing. A year later, a contractor shows a $12,000 mechanic's lien from work done for the previous owner that was recorded late and missed. The title insurer pays to resolve the lien and the buyer's legal costs, up to the policy amount.

Title Insurance vs. Title Search

Title Insurance

Title insurance protects a buyer or lender against losses from ownership problems that existed before the purchase, such as undisclosed liens, forged documents or recording errors. It is paid once at closing.

Title Search

A title search is a review of public records to confirm who legally owns a property and to find any liens, judgments, easements or other claims that could affect ownership.

The differenceA title search is the research into public records that finds known problems; title insurance pays for losses from problems the search missed.

Frequently Asked Questions

Related terms

LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.Closing CostsBuying & closingClosing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.Quitclaim DeedTitle & legalA quitclaim deed transfers whatever ownership interest the seller has in a property, if any, without any promise that the title is valid or free of liens.EscrowBuying & closingEscrow is an arrangement where a neutral third party holds money or documents until the conditions of a deal are met. The term also refers to the account a lender uses to pay a borrower's property taxes and insurance.Tax LienTitle & legalA tax lien is a government's legal claim against a property for unpaid taxes. Property tax liens usually take priority over mortgages and can lead to a tax lien certificate sale or tax deed sale.Lis PendensForeclosure processA lis pendens is a recorded notice that a lawsuit has been filed involving title to or an interest in a property, such as a judicial foreclosure. It warns buyers that the outcome could affect ownership.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.

Learn more in the knowledge base

Title, Liens and Due Diligence on Distressed PropertiesGuide · 9 min readDistressed properties often come with debts and paperwork problems attached. A title search, a clear understanding of which liens survive a sale and the right title insurance protect you from inheriting someone else's obligations. This guide explains what to check and when.Closing Costs Explained: What Buyers Pay and WhyGuide · 9 min readClosing costs are the fees and prepaid expenses due when a purchase completes, on top of the down payment. They vary by state, loan and price, and some are negotiable. This guide explains each category, how to read your disclosures and how to keep costs down.Closing and Recording: How a Property Purchase Becomes FinalGuide · 7 min readSigning papers is only part of closing. Money has to change hands safely, the deed has to be recorded in the public records and title insurance policies have to be issued. This guide explains those mechanics, who handles each one, how to protect your funds from wire fraud and which records to keep once the purchase is complete.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.