What type of insurance is typically required to protect a lender's interests during a mortgage transaction?

Title insurance is essential in a mortgage transaction as it protects the lender's interests against any claims or issues that may arise related to the title of the property. When a lender provides financing for a real estate purchase, they want assurance that the property is free of liens, encumbrances, or other legal issues that could affect ownership rights or the ability to sell the property in the future.

Title insurance serves to verify the title's validity and provide financial protection in case any claims arise after the purchase. For example, if a previous owner had unpaid liens or issues related to the title that were not discovered during the title search, the title insurance would cover the costs associated with resolving these disputes, ensuring that the lender's investment is secure.

In contrast, homeowners insurance protects the homeowner from losses due to damage to the property or liability claims, but it does not cover the lender's interests regarding the title. Liability insurance typically covers bodily injury or property damage claims against the property owner and also does not pertain directly to the security of the title. Flood insurance is specifically for properties located in flood-prone areas and protects against flood damage but does not address title issues. Thus, title insurance is uniquely suited to meet the needs of the lender in a mortgage transaction