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Typically the real property interests insured are Fee Simple ownership or a Mortgage . However, title insurance can be purchased to insure any interest in real property, including an Easement , Lease or Life Estate . Just as lenders require Fire Insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance. The following focuses on title insurance as issued in the United States . COMPARISON WITH OTHER INSURANCE Title insurance differs in several respects from other types of Insurance . Where most insurance is a contract where the insurer Indemnifies or guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance attempts to detect, prevent, and eliminate risks and losses caused by title problems which have their source in past events. Title companies attempt to achieve this by searching public records to develop and document the Chain Of Title and to detect whether there are any Adverse Claim s on the subject property. If liens or encumbrances are found, the insurer may take steps to fix them (for example, by obtaining a release of an old mortgage or deed of trust that has been paid off) before issuing the title policy or may specifically "except" those items from coverage. Title plants are sometimes maintained to index records geographically, with the goal of reducing claims. TYPES OF POLICIES Standardized forms of title insurance exist for owners, lenders, and for construction loans. Owner's policy The owner's policy insures a purchaser that the title to the property is free from defects (liens and encumbrances), except those which are listed as exceptions in the policy. It covers losses and damages suffered if the title is unmarketable (i.e., if the title can not be legally sold and conveyed to another party or if the property is "unmarketable"), for example if an interest in the property is found to belong to someone else, if there is no access to the land (if this coverage is provided), or if there is some other defect on the title. An owner's policy specifically lists what interest in the property is insured as of what effective date. The policy also contains various standard exclusions to coverage and also specific exceptions to coverage, based on documents that have been recorded against the property at some point in the past, that the title company is unwilling to insure. The policy limits of the owner's policy is typically the purchase price paid for the property. As with other types of insurance, coverages can also be added or deleted with an endorsement. There are many forms of standard endorsements to cover a variety of common issues. The premium for the policy may be paid by the seller or buyer as the parties agree; usually there is a custom in a particular state or county which is reflected in most local real estate contracts. Consumers should inquire about the cost of title insurance before signing a real estate contract which provide that they pay for title charges. A real estate attorney, broker, Escrow officer (in the western states), or loan officer can provide detailed information to the consumer as to the price of title search and insurance before the real estate contract is signed. Title insurance coverage lasts as long as the insured retains an interest in the land insured and typically no additional premium is paid after the policy is issued. Lender's policy The lender's policy is separate from the owner's policy. This type of policy insures the validity and enforceability of the Lien of the lender's mortgage or deed of trust. The lender's policy protects the lender for the amount of money lent against the property. Coverage under the lender's policy lasts as long as the loan secured by the mortgage or deed of trust has a balance. The title insurer's risk under a lender's policy is generally less than that of an owner's policy; as a result, insurers typically charge lower premiums for a lender's policy than would be charged for the same dollar amount of coverage on an owner's policy. Construction loan policy In many states, separate policies exist for construction loans. LAND TITLE ASSOCIATIONS In the United States, the American Land Title Association (ALTA) is a national trade association of title insurers. ALTA has created standard forms of title insurance policy "jackets" (standard terms and conditions) for Owner's, Lender's and Construction Loan policies. ALTA forms are used in most, but not all, U.S. State s. ALTA also offers special endorsement forms for the various policies; endorsements amend and typically broaden the coverage given under a basic title insurance policy. ALTA does not issue title insurance; they provide the policy forms that title insurers issue. Some states, including Texas and New York , may mandate the use of forms of title insurance policy jackets and endorsements approved by the state insurance commissioner for properties located in those jursidictions, but these forms are usually similar or identical to ALTA forms. While title insurance generally insures owners and lenders against things that have occurred in the past, in some limited circumstances, in some states, coverage is available for certain events that can occur after a title insurance policy is issued. Most notably, coverage is now available that includes the risk that a third party may place a forged mortgage or deed of trust against a property after the owner's policy has been issued. This coverage is included in the "Homeowners Policy of Title Insurance" (a specific policy form), published by ALTA and the California Land Title Association (CLTA). Note that this is not the same as a so-called CLTA Standard Policy, which provides much less coverage than the Homeowners Policy of Title Insurance. INDUSTRY PROFITABILITY The title insurance industry is a profitable one. In 2003 , according to ALTA, the industry paid out about $662 million in claims, about 4.3% percent of the $15.7 billion taken in as premiums. By comparison, the Boiler Insurance industry, which like title insurance requires an emphasis on inspections and risk analysis, pays 25% of its premiums in claims. Comparing claims with premiums tells only part of the story, since, for example, title insurance companies have marketing expenses not incurred by the boiler insurance industry. But the industry's profitability is also hinted at by the repeated instances of state regulators uncovering cases where title insurers have engaged in illegal marketing tactics. Although owners are free to shop around for title insurance, many owners defer such decisions to lenders or real estate agents, and title insurance companies have sometimes used illegal tactics in marketing to those decision-makers. Illegal tactics noted in a CNN /'' Money '' article include Kickback s, free vacations, and the free use of office space and equipment. The article noted that in 2005 alone over a dozen title insurers settled with regulators for tens of millions of dollars over these practices. Further evidence of the industry's profitability can be found by comparing the title insurance costs in the 49 states where such insurance is issued with the costs associated with the state-run Title Guaranty Program in Iowa , where title insurance is illegal. The program is run by the Iowa Finance Authority . It costs $110 for up to $500,000 in coverage in the state; after adding costs for the services of an Abstractor (who does the research on the property) and the legal fees, such a title guaranty costs about $400.00, versus the $1,100.00 paid for that same home in other states (based on figures cited by the Iowa Bar Association ). SEE ALSO
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