What is title insurance?
Title insurance is a policy issued by a title insurance company that provides you legal and financial protection against hidden risks unknown at the time of the property purchase. Any hidden risks (e.g., forged or missing documents, mistakes in recording legal documents, and liens for unpaid estate, inheritance, income, or gift taxes) could potentially lead to loss of title to the property and a significant financial loss.

Title insurance will pay for defending you against any lawsuits attacking the title as insured, and will either clear up title problems or pay the insured's losses. For a one-time fee, a buyer's title insurance policy remains in effect as long as the insured, or the insured's heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it.

Why do I need title insurance?
To protect possibly the most important investment you'll ever make - the investment in real estate.

A lender will go to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower's ability to repay the loan. Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory.

The lender does this by obtaining a loan policy of title insurance. The loan policy protects the lender against loss due to unknown title defects and any other hidden risks. You will have to pay for the lender's policy during the close of escrow. This will be one of the conditions the lender will stipulate to give you the loan.

However, the loan policy only protects the lender's interest. It does not protect you, the buyer and borrower. That is why a real estate buyer needs a title insurance policy, which can be issued at the same time as the loan policy. In fact, most title insurance companies that also handle escrows will require the buyer to obtain an owner's policy. The buyer can go elsewhere to try to avoid obtaining an owner's policy, but it is highly inadvisable.

Without a title insurance policy, you may not be fully protected against errors in public records, hidden defects not disclosed by the public records, or mistakes in examination of the title of your new property. As a result, you may be held fully accountable for any prior liens, judgments or claims brought against your new property. However, your policy insures that if such an occasion arises, you will be defended free of charge against all covered claims and paid up to the amount of the policy to settle valid claims.

What is the risk of loss?
If the lender has title insurance protection and you, the owner, do not, what possible risk of loss exists?

As an example, let's assume real estate was purchased for $200,000. A down payment of $40,000 is made, and a lender holds a $120,000 mortgage lien on the property. The lender acquires title insurance protecting the lender's interest up to $120,000. But the purchaser's down payment of $40,000 is not covered.

What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title. The title insurance company pays the lender's loss and is entitled to take an assignment of the borrower's debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property.
And the balance on the note is still due!

How can there be a problem if the title has been searched and a policy issued?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search. It's the risk of these unknown problems that necessitate title insurance.

What does title insurance protect against?
Here are just a few of the most common hidden risks that can cause loss of title or create an encumbrance on title:

• False impersonation of the true owner of the property
• Forged deeds, releases or wills
• Undisclosed or missing heirs Instruments executed under invalid or expired power of attorney
• Mistakes in recording legal documents
• Misinterpretations of wills
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds by persons supposedly single, but in fact married
• Liens for unpaid estate, inheritance, income or gift taxes
• Fraud

What types of policies are available to me as a homeowner?
For the average property owner, there are two different types of title insurance policies that you need to be aware of:

Owner’s Title Insurance Policy &  Mortgagee’s Title Insurance Policy

Since most property owners mortgage or borrow money at the time of purchase or during ownership, the lender can be expected to request protection of its investment against loss. Lenders know that many things can cause loss of title or that expenses are incurred while defending an attack. They insist upon a Mortgagee’s Title insurance Policy to protect their stockholders’ and investors’ investment in your property.

An Owner’s Title Insurance Policy protects your investment (equity) as the buyer or owner of the property. As the owner, you should want to have the same assurance as the lender that the investment you have made cannot be lost because of a problem or defect with the title.

How does title insurance differ from other types of insurance?
Title insurance is different from other types of insurance in that it protects you, the insured, from loss that may occur from matters or defects from the past. Other types of insurance such as auto insurance, life insurance, or health insurance, cover you against losses that my occur in the future. Title insurance does not protect against a defect that may originate at a later date.

What does Title Insurance cost?
The cost varies, depending mainly on the value of your property. The important thing to remember is that you pay only once for an owners policy, then the coverage continues in effect for as long as there is no change of ownership. If you should die, the coverage automatically continues for the benefit of your heirs. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property. In Florida the premiums for title insurance are regulated by the Florida Department of Insurance.