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Title Insurance Policy
Practical Law Glossary Item 9-508-5805 (Approx. 4 pages)
Glossary
Title Insurance Policy
A form of indemnity insurance that is used in real estate transactions. Title insurance policies are issued by authorized title insurance companies. Generally, title insurance is used to insure against financial loss resulting from:
- Defects or disputes relating to the title of real property.
- Unenforceability, or loss of priority, for liens held by mortgage lenders.
While title insurance can be purchased to insure any interest in real property, including an easement or life estate, title insurance policies are most often purchased by the following parties in real estate transactions:
- Purchasers. Generally, a purchaser of real estate buys title insurance at the time title to the real property is transferred. At the closing the purchaser buys an owner's title insurance policy that provides the purchaser with indemnity insurance against any third-party claims to title. The amount of insurance purchased is most often the amount of the purchase price.
- Lenders. Generally, a lender requires the borrower to purchase a lender's title insurance policy in the lender's name when there is a financing, or refinancing, of a mortgage loan. As of the closing date, the lender's title insurance policy provides the lender with indemnity insurance against the unenforceability of its mortgage lien. The amount of insurance purchased can be the amount of the loan. However, depending on the jurisdiction, the insurance amount may be adjusted slightly upwards to provide for increases that may occur during the term of the loan in the value of the underlying real property encumbered by the mortgage lien.
- Tenants. A tenant may purchase a leasehold title insurance policy if:
- the tenant's lease is of great value to the tenant; and
- the tenant determines that the added indemnity insurance is necessary to protect its leasehold title to the real property against any third-party claims.
The scope of regulation of the title insurance industry varies from state to state. The American Land Title Association is the national trade association and voice of the title insurance industry.