Title insurance is a type of insurance that protects both the homebuyer and the mortgage lender against potential financial losses attached to a new home and property. When a buyer and seller enter into a contract of sale for a property, a title agent is selected to initiate a search in the local jurisdiction's land records for any encumbrances, liens, claims, or conflicts that need to be resolved before the transfer of the property from one party to the other.

If those hindrances have not been settled through the title search process before closing, the financial liability of fixing those issues could fall on the new homeowner. If a claim had to be made, a title insurance policy would pay for damages and costs associated with repairing the problems. Let's take a look at the various type of title insurance that is available.

• Lenders Title Insurance - This policy covers liens (including contractor and mechanic liens), easements not on record, access rights, and defects on the title. Lenders will typically require that a lender's insurance policy be bought to protect their investment.

• Owners Title Insurance – This policy is meant to protect against fraud, forgery, restrictive covenants, and any deterrents that may be found before and after the title has been transferred. This policy covers your interest, aside from the outstanding loan amount.

• Extended Title Insurance – Any building permit violations from the previous owners, trusts, encroachments, and covenant violations will be covered by an extended title insurance policy.

Title insurance policies are designed to help prevent any unwanted surprises about the title of a property after a home is finalized. With a title insurance policy in place, you can go into a real estate contract knowing that the title will be thoroughly investigated before taking possession.