Title Insurance insures you against attacks to the ownership of your property, both legal and fraudulent, including legal fees and any settlements, up to the maximum amount of the policy.
Let me give you an example, Jim and Marcia had been renting for the first 5 years of their marriage, while they saved the down payment on a home. They purchased a nice 3 bedroom home in a nice neighborhood. Then one morning, they received a knock on the door and a deputy sheriff served them with a foreclosure notice. Even though they had never even been a day late on any payment. It seems that the owner of the property, 3 owners back, had the property foreclosed on by a bank that held a second mortgage. When everything was done with the foreclosure, the first mortgage had never been satisfied and that mortgage holder had not done anything with the debt, until now. Jim and Marcia did not have clear title to the property. What Jim and Marcia did have was a Dakota Homestead Tile Insurance Owner's Policy. The Title Insurance Policy paid off the mortgage, the accumulated interest and also took care of all of the legal expenses. That is what a title insurance policy does.
Title Insurance is a form of indemnity insurance which insures against financial loss from defects in title to real property. 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, which is usually equal to the full price paid for the property.
Title insurance is purchased to insure any interest in real property, including a purchase, improvement, easement, lease or estate. Title insurance covers past occurrences not future unforeseen events. There are two types of policies, owner and lender. Just as lenders require property insurance to protect their investment, lenders also require a Lender Title Insurance Policy to protect their interest in the collateral of loans secured by real estate. Buyers purchasing properties usually purchase an Owner Title Insurance Policy as well. A lenders loan title insurance policy provides no coverage or benefit for the buyer or owner and so the decision to purchase an owner policy is independent of the lender's decision to require a loan policy.