The purpose of title insurance is to protect the Lender and the Buyer against loss from mistakes which could have occurred in the abstract of the title and claims which cannot be discovered by an examination of public records -- the "hidden defects".

Such hidden defects include:

1. A forged will or deed

2. A signature by a minor without a legal guardian's approval

3. A deed from amentally incompetent person

4. Fraudulent representations

5. Undisclosed or missing heirs

6. Invalid divorces

7. False affidavits

8. Liens involving judgments and mechanics

9. Unpaid taxes

10. Sellers who misrepresent their marital status

11. Mistakes in recordings and title searches

12. Defective foreclosures or tax sales

13. Improper acknowledgments

14. Deeds executed under a defective power of attorney

15. Clerical errors in the land records

16. Confusion arising from similarity of names

17. Improperly probated or undiscovered wills

Generally, the Lender requires that the Buyer purchase title insurance to cover the Lender's equity (The "Lender's Title Insurance Policy"). The policy protecting the Buyer's equity, the "Owner's Title Insurance Policy," is optional and highly recommended. A one-time premium is paid, the cost of which depends upon the mortgage amount and/or purchase price. If the Buyer fails to buy the Owner's Title Insurance Policy, in the case of a title loss, the Lenders Title Insurance Policy will protect the Lenders equity, but the Buyer's equity will not be protected and the property may be lost to the title claimant. If the Buyer purchases the Owner's Title Insurance Policy, and a claim is made against the title as insured, the title insurance company protects the Buyer by defending the title, in court if necessary, at the title insurance company's expense. If a claim of ownership is found valid, the title insurance company guarantees the Buyer against loss to the extent of the purchase price of the property, plus inflation factors. Insurers are regulated by the state and maintain statutory reserves for the protection of policy holders.