How It Works
Before you understand title insurance, you need to understand what a title is. Basically, a title is a term that includes all of your legal rights to own, use and sell a piece of land. The title reflects all previous ownerships and transfers, including rights previously granted by other parties, such as mortgages and easements.
If there are problems with the title, the ownership of your land could be in question. Unpaid taxes, a lien (which is an unpaid claim) filed by someone who worked on the house, or any of countless other situations could cause a major problem. And even if you don't get the land, you might still be responsible for the mortgage! That's why it's important to have title insurance.
What is a title? When you purchase a home, you are really purchasing the title to the property - which is the right to occupy and use the property. That legal right is usually documented in the form of a deed recorded at the local courthouse. A title may be contested based upon past rights and claims asserted by others. These types of claims can complicate your purchase of the property, or challenge your ownership later on, and potentially cause you to lose money.
So what is title insurance? It's insurance against undisclosed problems with the title, and it protects you against financial loss due to title defects, liens or other matters of public record. Title insurance will defend you against a lawsuit attacking your title, or reimburse you for the actual money lost.
Before a policy is issued, a title insurance company conducts in-depth research to detect, prevent, and eliminate risks and losses caused by title problems. They do this by searching public records to develop and document the chain of title to the property and by identifying all outstanding claims.
For a one-time premium, your owner's title insurance policy will remain in effect for as long as you own the property.
Your mortgage lender will also require a title insurance policy. The lender's policy protects the lender against any title problems that may affect repayment of the loan. The owner's policy and the lender's policy are two different policies, and the one-time premiums for both are usually paid by the home buyer. In a few states, the home seller pays for the owner's policy. If you have a question about this, ask your real estate agent, mortgage lender, attorney or closing agent.
Why do you need title insurance?
A home is often the largest single investment any of us ever make. Title insurance protects against loss of value from defects that may exist in the title, or arguments made by others that such defects exist. These defects or problems include fraud, forged signatures on deeds, unknown heirs or previous owners, liens and documentation errors. If you were uninsured and your right to the title is challenged, you could lose significant money defending yourself - you could even lose your home.
How does title insurance protect you?
An owner's policy of title insurance protects a buyer against defects in the title of the property, either clearing up title problems or paying for your losses. For a one-time premium generally paid at closing, an owner's title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.
How does title insurance protect the lender? A lender's policy of title insurance protects the lender that financed a piece of real estate against loss caused by defects in the owner's title.
Why do I need title insurance on a refinance?
Title insurance on a refinanced mortgage is usually offered at a reduced rate, and it assures your lender that you actually own the property. It insures that no one else has a preemptive position in front of the lender, and if someone does, it pays the lender's losses.
Why do I need title insurance on a brand new house?
Even if your home itself hasn't had previous owners, the land that it stands on has. Your policy insures you as the owner of a specific piece of property. It clarifies the property rights and insures that your builder hasn't used it as collateral on another loan, that there are no unidentified easements affecting your property and that no problems will surface to hurt you later.
The pdf file links are as follows with a brief description
Questions about Title Insurance Why you need Title Insurance