Title insurance is an insurance policy that guarantees that you are getting clean title to a land. In other words, it is insurance that guarantees that you are receiving a full and 100 percent interest in a piece of property and that there are no other claims to that property. If it later turns out that there was another ownership interest out there, then the title company must reimburse you according to your title insurance policy for any financial loss that you incur as a result.
Understanding Title Insurance
When you buy a property, you may assume that the person selling it to you has the right to do so and that you are getting the property unencumbered. Unfortunately, this isn't always the case, and when it isn't, a number of different problems can arise. For example, if the previous property owners owed back taxes on the property, a tax lien may have been placed on the house. Likewise, if the previous owners had some work done on the home and didn't pay, then there might also be a mechanics lien on the house. In both of these instances, that would mean that the IRS and the mechanic had a claim to the property you owned and that you could end up having to pay the IRS or the mechanic the money owed (especially if you ever wanted to try to sell the house).
Because this could add up to a lot of financial loss, title insurance takes on the risk of that loss for you. If a title company said you had clean title and provided title insurance for you, and then it later turned out that there was that mechanics lien on there, the title company would have to pay off the balance so that you would get the free and clear land ownership you were promised.
Purchasing title insurance, like any other aspect of a real estate transaction, must be done with care. It is in your best interests to have a lawyer on your side to guide you through the whole process of buying real property, including the process of buying title insurance, so you can ensure that all of your legal rights are protected.