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Real Property • Conveyances
PROP#171
Legal Definition
Title insurance only protects the holder of the policy and does not run with the land.
Plain English Explanation
Title insurance is a type of insurance policy that protects against potential problems with a property's title. In other words, despite all the effort and due diligence that goes into buying a house (such as checking public records), sometimes people miss things like liens, encumbrances, or defects in the title itself (which can undermine the buyer's right to own the property). When someone buys a house, they can opt to purchase title insurance, which protects them and only them.
Hypothetical
Hypo 1: Amy possesses Whiteacre. Bob wants to buy Whiteacre. Bob buys title insurance. Little does Bob know that Amy is actually an adverse possessor, and does not actually own Whiteacre. Carl owns Whiteacre, but Carl is currently traveling the world. After a couple years, Bob decides to sell Whiteacre to Dan. Dan does not buy title insurance. After closing, Carl comes home and contests Dan's possession of Whiteacre. Result: Had Carl come home and confronted Bob, Bob's title insurance would have helped cover the costs and headache of Carl's claim (such as litigation). But Bob sold Whiteacre to Dan, and Dan didn't buy his own title insurance policy, which means Dan must deal with the costs of Carl's claim himself.
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