What type of insurance protects the lender against loss from title defects?

Lender's title insurance is specifically designed to protect the lender from financial loss due to defects in the title of the property being mortgaged. When a lender provides a loan, they want assurance that the property is free of any legal claims, liens, or defects that could affect ownership. Lender's title insurance secures the lender's investment by covering potential issues such as undiscovered ownership claims, fraud, or errors in public records that could later arise.

This type of insurance remains effective for as long as the mortgage is in place, ensuring that if a covered title defect emerges, the lender is protected from having to absorb that loss. Unlike homeowner’s insurance, which covers loss or damage to the property itself due to events like fire or theft, lender’s title insurance specifically focuses on issues of property title integrity.