What is title insurance and what does it cover?

Key takeaways

• Title insurance protects against past problems, such as unpaid liens, ownership disputes or clerical errors that could threaten your legal right to the property.
• Thorough title searches still require insurance because they can miss forged deeds, undiscovered heirs or recording mistakes.
• Owner’s title insurance is paid at closing and can provide long-term peace of mind for a relatively small share of the home’s purchase price.

Unlike homeowners insurance, which protects against future damage, owner’s title insurance covers past problems that could threaten your legal ownership.

It provides similar protection for the mortgage lender and is often required for loan approval.

Here’s what you need to know.

Over time, a property can accumulate unpaid balances, forged documents or boundary disputes. These issues, known as title defects, can include illegal prior deeds or undiscovered wills that reveal missing heirs.

Even homes that have changed hands many times aren’t immune. Problems are sometimes missed in earlier searches, “so they go unfixed,” said Marcus Ginnaty, spokesperson for First American Title Insurance Company. “That is where title insurance coverage matters.”

Title companies aim to resolve defects before closing, but problems can still surface later and require legal or financial action. It covers legal fees and related costs of issues that didn’t get fixed.

Most title insurance companies follow a standard policy set by the American Land Title Association, though some offer enhanced coverage. Here’s what they cover:

• Financial encumbrances: These are monetary liens placed on a property, such as unpaid mortgages, taxes, construction bills or home equity lines.
• Easements and access issues: Most easements are identified during the search and survey process, but unrecorded easements can still arise.
• Disputed ownership claims: Ownership disputes can stem from missing heirs, undiscovered wills or claims that predate construction of the home itself. Boundary disputes can also trigger ownership challenges.
• Fraud and forgery: Fraud can take many forms, including forged deeds, identity theft or fraudulent sales.
• Closing, search and public record errors: Misspelled names, improper notarization or filing errors can complicate ownership.

Title insurance is usually purchased at closing, so it typically doesn’t apply to existing mortgages. “While it may be possible to get it later, asking for coverage after closing can pose challenges,” Ginnaty said.

A new policy can be issued during a refinance, with coverage adjusted for any increase in property value.

Title insurance is paid once and lasts for as long as you own the property.

Lender’s and owner’s policies can be purchased together, with costs based on the home price and loan amount. According to the Consumer Financial Protection Bureau, title insurance typically costs 0.5% to 1% of the purchase price.

Buyers can choose their own title insurance provider, and “local expertise and customer service standards are important factors to consider,” said Ginnaty.

Once the property’s purchase agreement is complete, the closing attorney typically begins the title insurance process. The title company and underwriter work to ensure all requirements are met on time.

Most title searches take only a few days. Complex defects may take longer and can delay closing, though “thankfully, this is rare,” Ginnaty said.

Title examiners review public records to trace ownership back to the original owner and confirm that no competing claims exist.

If a defect emerges after closing, resolving it can be time-consuming and expensive. “In rare instances, a significant title defect may require going to court,” Ginnaty said.

This story was updated April 30.