Title insurance is an indemnity policy that protects you or your mortgage lender against problems relating to the property’s title prior to the date of the policy. For example:

• If someone forged a signature in a past transfer of the title from one owner to another.
• Unpaid real estate taxes on the property.
• Liens against the property, including foreclosure, that are unresolved.

Unlike home insurance and car insurance, which focus on possible future hazards and charge an annual premium, title insurance is a safeguard against loss from hazards and defects already existing in the past.

There are three types of title insurance:

• A basic lender’s policy (purchased by banks and other lenders).
• A basic owner’s policy.
• An extended owner’s policy.

Title insurance protects you (or your lender) if a lawsuit is filed against the title.

Title insurance will provide legal representation in a lawsuit making claim against the title as it is insured. If necessary, it will also reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy, if lawsuit is lost.

Any existing liens against the property must be satisfied either prior to or at the time of transfer to clear the title for transfer. It is the current owner’s responsibility to satisfy all liens before title/ownership can be transferred.

Owner’s title insurance, issued in the amount of the real estate purchase, can be bought for a one-time fee and lasts as long as you or your heirs have an interest in the property.

The most common types of claims filed against a title are back taxes that were somehow overlooked by the title company in researching a sale, easements, liens including mortgage loans and home equity lines of credit, and conflicting wills related to the property. Also, if the builder fails to pay subcontractors and suppliers, title insurance covers you against any lien on the property.

Ask the seller to pay for your policy, this will save you some money.