Title insurance is a type of insurance that protects mortgage lenders and/or property owners against claims questioning the legal ownership of a home or property (i.e., the title to the property). If disputes over title ownership arise after the purchase, the insurance policy pays for legal fees to resolve them.
Unlike other types of insurance that help cover future mishaps, title insurance is designed to protect the policyholder from past title discrepancies from the seller or previous owner that might be uncovered during or after the purchasing process. Title insurance has limitations.
“Insurance” is defined by statute as a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event [Ins. Code § 22]. “Title insurance” is defined as the insurance, guarantee, or indemnification of owners of real or personal property, holders of liens or encumbrances on real property, or other persons interested in real property, against loss or damage suffered by reason of [Ins. Code § 12340.1; see Ins. Code § 104]:
- Liens or encumbrances on, or defects in, the title to real property;
- Invalidity or unenforceability of any liens or encumbrances on real property; or
- Incorrectness of searches relating to the title to real or personal property.
In addition, title insurance policies may insure such matters as the identity, due execution, and validity of notes or bonds secured by mortgages or deeds of trust [Ins. Code § 12390(a)]; the identity, due execution, validity, and recording of any mortgage or deed of trust [Ins. Code § 12390(b)]; and the identity, due execution, and validity of evidences of indebtedness issued by the State of California, its political subdivisions or districts, or public corporations [Ins. Code § 12390(c)].