What is a Lender’s title policy?

A Lender’s title policy is an insurance policy guaranteeing to make the lender “whole” if a title defect is later found that causes the financial loss to the lender. Most mortgage lenders insist that the borrower purchase a Lender’s title policy to protect the amount they lend from insured title risk loss. Potential losses include forged signatures, recording errors, deed indexing mistakes, unpaid property taxes, recorded liens, improper foreclosures, title search errors, undisclosed easements, and title claims by heirs and former spouses. If a homeowner fails to make payments on the loan for which the property is collateral, the lender will be first in line to collect if there is a foreclosure.