Title insurance safeguards the title, which is your claim to a home. The title company searches to see if anyone else has any claims to the property. Any problems that arise are dealt with before closing.
However, if you're buying a foreclosure and the title company doesn't like what it sees, it may not sell you a policy.
Homebuyers need title insurance protection. Such a policy asserts the policy holder has the true claim to the property and promises to defend the policy holder in court if the claim is ever challenged.
In the event of a loss of that claim, the insurance company also promises to reimburse the policy holder up to the insured value of the house.
"In this environment, you're basically buying litigation insurance," says Kurt Pfotenhauer, CEO of the American Land Title Association, a title insurance industry trade group in Washington, D.C.