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Step 8: Insurance
A “title" is the collective ownership records of a piece of real estate, including the transfer of any property rights and any loans using the property as collateral. A clear line of title makes you much less vulnerable to ownership claims from other parties and to any outstanding debts of previous property owners. Title insurance protects you against losses arising from problems with your property title that were unknown to you when you bought the property.
Before writing a title insurance policy, a title company will check for defects in your title by examining public records, including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps.
The company will then defend in court against claims to the property, subject to certain limitations. If the company loses, it will pay you for covered losses up to the amount of your policy.
Title companies also handle the closing of a property sale and hold any earnest money in a trust account until the purchase is complete.