Why is it important to obtain title insurance in a mortgage transaction?

Obtaining title insurance in a mortgage transaction is crucial primarily because it protects the buyer and lender against unknown liens or disputes regarding ownership. Title insurance provides a safeguard against potential claims that may arise after the property has been purchased. For instance, there could be pre-existing liens from contractors or judgments against previous owners that were not disclosed during the transaction. If such issues come to light after the purchase, title insurance can cover legal fees and costs associated with defending against these claims or resolving disputes regarding rightful ownership. This coverage is essential in ensuring that the buyer has clear and undisputed ownership of the property, which is a fundamental requirement when entering into a mortgage agreement.

Although obtaining title insurance may also satisfy certain lender requirements and could influence closing costs, the primary function and the most significant benefit of title insurance is the protection it offers against unforeseen claims or ownership disputes.