Title Insurance

Title insurance is also called indemnity insurance, and in terms of the United States real estate is protection against monetary loss resulting in defects of a real estate title as well as from an unfounded mortgage lien. Due to insufficient land record laws within the U.S., title insurance was created as a means to protect a landowner or a mortgage holder from losses incurred from problems that might arise from a faulty title. In the event of a lawsuit against the legitimacy of a title, title insurance will defend the owner's claim of ownership. In the event the title is found to be faulty, title insurance will reimburse the owner for any actual financial losses incurred up to the policy's limit.

Before title insurance, buyers had the responsibility of making sure the title was clear and good. In the event the title was not clear, the buyer would likely loss all of the money they had invested in the property. Cases heard by state Supreme Courts were unable to rule in favor of buyers who were deemed to have faulty titles in the event the seller based the legitimacy of the title upon the opinion of a professional, leaving the buyer with no recourse at all. For this reason, the state of Pennsylvania passed legislation in 1874 to allow title insurance companies to incorporate.

Overall, the process of transferring ownership of land and real property consists of recording the transfer document with the government recorder of the local jurisdiction the property is located. Normally this is the county recorder's office. The document is then indexed by grantor and grantee names, and then photographed so that anyone who wishes to locate and examine the document can do so.

Title insurance companies typically conduct a search on a property title before insuring the property as they are looking to clear up any discrepancies or problems before the date of closing. By looking through the title indexes within the county recorder's office, the titles can be found, examined, and determined to be reasonably or assuredly clear for transfer. If a title is found to be only reasonably clear, it is called a merchantable title, but if it is found assuredly clear, it is called a marketable title. All titles transferred on the date of closing are considered marketable unless otherwise stated in the real estate contract. There are different types of title insurance depending upon whether the insured is the owner or the lender for a property.