If a Lender has title insurance protection but the owner does not, what possible danger of loss could the owner face?

As an example, let’s consider a purchase of real property in the amount of $200,000. The purchaser makes a down payment of $40,000, which is the amount of their equity in the property. They then take out a mortgage loan for $160,000. This is the amount that the lender seeks to insure, as it represents the extent of their investment in the transaction. In such a scenario, the purchaser’s equity of $40,000.00 is not protected.

So what would happen if some other matter arises affecting the past ownership of the property? The title insurance company would only defend and protect the interest of the lender. The owner/borrower would have to assume the financial burden of the legal defense. And if the legal defense is not successful, the result could be a total loss of title. In such a scenario, the title insurance company pays the lender’s loss, and perhaps takes an assignment of the owner/borrower’s remaining debt. But the owner/borrower loses the down payment and any other equity that may have accumulated, as well as the property itself. And the balance of the note must still be paid.