A title insurance policy protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership.
A lender will typically require that a borrower purchase title insurance whenever they issue a mortgage on real property. A title insurance policy protects the lender against defects in the title that might jeopardize its security interest in the property. Title insurance in the United States is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens.
There are two types of title insurance – owner’s title insurance (an Owner’s Policy), which protects the buyer, and lender’s title insurance (a Loan Policy), which protects the lender. In a typical residential transaction, the title policy often required by the mortgage lender will not safeguard the rights and interests of the home purchaser, therefore, a separate policy for the owner is necessary.
Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the US land records laws. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. The policy itself is usually a standard form developed by an entity such as the American Land Title Association (ALTA; http://www.alta.org/) or the Florida Land Title Association (FLTA; http://www.flta.org/), and approved by Florida regulators.
Typically the real property interests insured are for simple ownership or a mortgage. Nearly all institutional lenders require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance. Buyers purchasing properties for cash (without a lender) often require title insurance as well.
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