Title insurance is an optional purchase for a buyer but if financing is involved the lender will require it. Title insurance is like any other insurance except it protects against previous claims, fraud or other actions that might lead others to claim an interest in the property. Even though title insurance is a what does title insurance dorequirement for a lender and they’re the primary beneficiary

it’s typically the seller that pays the premium but that can change due to local customs as well as what is dictated on the sales contract. How does title insurance work?

When a sales contract is signed or a borrower applies to refinance a mortgage the lender orders a preliminary title report from a title agency or perhaps a real estate attorney depending upon the location of the property. This preliminary report arrives in a day or two while waiting for the updated report. The preliminary report will show all previous owners and any current and previous liens on the property.

The most common type of lien is a mortgage and when the deal closes the existing mortgage is paid off and the lien is released. Other liens include those for delinquent property taxes, judgments, income tax liens and mechanic or contractor liens. If a legitimate claim arises after you’ve purchased the property title insurance will pay the claim and you keep the home and the loan.

Title insurance also protects against previous claims of ownership. Say that a couple bought a house together, later divorced and one spouse left the property never to be seen from again. A few months after you closed on your purchase you receive a knock on the door from that very person who divorced and disappeared claiming you don’t own the house, the ex-spouse does so move out. Title insurance protects against such claims keeping you in the house and recognized as the legitimate owner.