Which statement correctly describes the purpose of a title insurance policy and the difference between lender's and owner's policies?

• A. Title insurance protects against defects in title; lender's policy protects the lender’s security interest; owner's policy protects the borrower's ownership rights
• B. Title insurance does not protect against title defects
• C. Lender's policy protects owner's rights; owner's policy protects lender's security interest
• D. Title insurance is optional and only covers legal fees

Answer: (B)

Title insurance protects against losses from defects in the title that could affect ownership or the lender’s security, arising from issues that existed before the policy was issued but weren’t found in the title search. It covers risks like forged documents, undisclosed heirs, improperly recorded liens, or errors in public records that could threaten a clean title.

A lender's title policy is issued to protect the lender’s security interest in the property and typically covers the loan amount. It stays in effect until the loan is paid off and does not protect the borrower’s ownership rights beyond securing the loan.

An owner's title policy protects the owner's full ownership rights and equity in the property. It is usually based on the purchase price and remains in effect regardless of loan terms, providing protection for the owner's title up to the policy amount.

So, the purpose of title insurance is to insure against title defects, and the difference between the two policies is who is insured and what is protected: lenders protect the loan against title issues, while owners protect their ownership rights.