Tuesday Title Talk : What is Title Insurance?

A title insurance policy is a contract insuring the insurer’s “ownership” or “interest” in a specific piece of Real Property. A title insurance policy insures the owner or others having an interest in the property against loss due to encumbrance, defective title, or adverse claims against the title. This includes “hidden hazards” which will be explained in further detail later on.

An encumbrance is a right to, interest in, or legal liability on real property that does not prohibit passing title to the property but that diminishes its value. Encumbrances can be classified in several ways. They may be financial (ex: liens) or non-financial (ex: easements, private restrictions).

A Defective Title refers to a piece of property or asset that has a publicly-recorded encumbrance, such as a lien, mortgage or judgment. Because other parties can lay claim to the property or asset, the title cannot be legally transferred to another party.