Why do mortgage lenders require Title Insurance

Whenever a lender commits to loan money on a piece of real property, it takes certain steps to establish the security of its prospective investment. The security of a mortgage loan is protected by conducting a due diligence investigation of both the purchaser/borrower and of the property itself. With respect to the property, a significant part of the lender’s due diligence involves determining the status or quality of title to the property. The lender does this by obtaining a loan policy of title insurance. The loan title policy is purchased to protect the lender’s interest from loss due to unknown title defects or certain kinds of matters (such as unpaid property taxes or mechanics liens, for example) that may exist but remain unknown at the time of the loan.