Title insurance provides protection against title defects that were unknown to you at the time you purchased the policy. The term "title" refers to the collected 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 outstanding debts of previous property owners.
Before writing a policy, your title company checks 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 any claims to the property that are covered by your policy, subject to certain limitations. If the company loses, it will pay you for covered losses up to the amount of your policy. Title companies may also be able to arrange for escrow, settlement and 1031 exchange transactions.