A title is the evidence or right a person has to the ownership and possession of land. A defect in the title can be any legal right held by someone other than the owner to claim property or make demands on the owner of that property.
When purchasing a home, instead of purchasing the actual building or land, you actually are purchasing the title to the property. After you buy a home, you are given a title to the property, which gives you full legal ownership. However, there can sometimes be a defect in title or a hidden mistake in a prior deed, will, mortgage, etc., that may give someone else a valid legal claim against your property. In short, title insurance is protection against loss if a covered defect is found in your title.
It protects all the parties involved in the real estate transaction against previous mistakes and defects. Examples include forgeries on deeds, typographical errors, pending legal actions against the property, claims by previous undisclosed relatives of a former owner, outstanding judgments or liens, easements, etc. Title insurance can save you money, time, trouble, and can even save you from losing your home!
There are two types of title insurance policies. The first, a ‘Loan Policy’ or ‘Lender’s Policy,’ protects the lender and covers the outstanding balance on the mortgage, but it does not protect you as the homeowner. The second type, an ‘Owner’s Policy,’ covers you as the buyer and ensures the title to the property is free from defects (liens and encumbrances), except those which are listed as exceptions in the policy. It will give you peace of mind and maximum protection in the event there is a claim against your home.
Depending on your policy, coverage typically protects against certain hidden risks like these:
These may not be covered by your title insurance policy.
Standard Exclusions/Exceptions: Often appear as part of the printed form.
For example: limitations on land use, such as laws against farm animals and mechanic’s liens, such as unpaid construction or repair bills.
May be written into your policy based on defects found in the title search.
For example: easements, rights of way, and other legal obligations noted in the deed or public records, “Restrictive covenants,” agreements limiting certain types of use for your property.