Title insurance protects homebuyers and mortgage lenders from defects or problems with land titles in the transfer of property. More specifically, it covers losses that could result from liens, encumbrances, or defects to the title of a property. Lenders will typically require that the homebuyer purchase a lender’s title insurance policy when issuing a mortgage loan to a borrower. This type of policy covers the lender. Homebuyers typically purchase an owner’s policy that will protect their title interests as well.
If there is a title dispute resulting from a sale, the title insurance company may be responsible for paying specified legal damages, depending on the type of policy. Put in simpler terms, title insurance protects the homebuyer and their lender in case the seller of a property doesn’t own it free and clear of liens or other claims to it.