Which parties are protected by title insurance against title defects and undiscovered liens?

• A. Lenders and buyers.
• B. Only lenders.
• C. Only buyers.
• D. Insurance company.

Answer: (A)

Title insurance is designed to protect the insured party against problems with the property's title that could affect ownership or the lender’s security. In a typical real estate transaction, there are two common insured parties: the lender and the buyer. The lender obtains a lender’s policy to protect the lender’s security interest in the property if title problems arise that could affect the mortgage or the lender’s priority to be repaid. The buyer (owner) obtains an owner’s policy to protect their equity in the property from defects in title or undiscovered liens that could surface after closing. Because both parties have a financial stake in having a clear title, title insurance is provided to both lenders and buyers. The insurance company simply issues the policy and provides coverage; it is not the insured party. This is why both lenders and buyers are protected by title insurance against title defects and undiscovered liens.