There are two basic types of Title Insurance…

• Lender’s Title Insurance
• Owner’s Title Insurance

Lender’s Title Insurance

If you are buying a home with a loan, you will probably be required to buy Title Insurance for you lender.  What the Title Insurance will do is protect them from damage if there is a claim (or cloud) on the title to the property.

Let’s say that there is a will discovered that means that someone in the past sold the property but didn’t have the right to sell it… it could nullify the ownership of the current “owner”.

The Lender’s Title Insurance would pay off the lender for their loss… or, more likely, pay off the claim to buy out the interest of the new claimant.

Owner’s Title Insurance

You lender isn’t going to require that you buy Owner’s Title Insurance.  They don’t care…  It protects YOU from loss in the above situation.  Basically, it protects YOUR equity.

Honestly, Owner’s Title Insurance can be a profit center for the closing attorneys.  They make money selling the policies… although most won’t press anyone to buy it.  For most buyers, it is an optional expense that is worthwhile…

Case Study…

Here is a situation that I am seeing right now…  A seller (not my client) has a property that is under contract.  They purchased it last year out of foreclosure.  During the standard title search a lien was missed.  Now there is a lien on the property that doesn’t belong to the seller.  There is no lender involved.  Basically, they can’t sell it until this is resolved.  They have hired a lawyer to deal with it.

Keep in mind that these situations are quite rare… but they can be financially devastating.  Imagine living in a home for a while and building up some solid equity.  And then, out of the blue, losing the home and the equity.  Rare… but devastating.