Title Insurance protects property owners and mortgage lenders against issues that might arise with a title whenever there is transfer of ownership. If a title dispute comes up during a sale, your title insurance company may be responsible for covering legal damages.
When you begin the process of obtaining title insurance, the title company (or an attorney) researches real estate records to make sure that there are no issues with the title. Examples may include undisclosed heirs to the property, unpaid taxes, or pending legal action. This is to ensure that the title is clean and that the seller truly owns the property and has rights to sell it. Homebuyers usually need both an owner’s policy and a lender’s policy.
Some examples of issues that could potentially cause issues with your title are: forgery, errors in documents or surveys, misinterpretation of wills and trusts, heirs born after the execution of a will, and incorrect indexing of land records.
Source: Chicago Title Insurance Company, “Why You Need Owner’s Title Insurance.”