What does the lender's title policy primarily protect against?

The lender's title policy is designed to protect the lender's investment in the property by ensuring that their claim to the property is secure. This policy specifically covers risks associated with existing liens, encumbrances, and defects in the title that may not have been identified during the initial title search.

When a lender provides financing for a real estate transaction, they require assurance that the property is free of issues that could jeopardize their loan. For instance, if there are unknown liens on the property—such as unpaid taxes or contractor claims—the lender could face financial loss if those obligations are enforced. The lender's title policy safeguards against these types of unforeseen claims, ensuring that the lender has a clear title and can recover their investment in the event of a legal challenge related to the property's ownership.

This type of insurance is critical because it helps the lender mitigate potential financial risks that may arise from disputes over property rights, thus maintaining the integrity of the transaction and securing the property as collateral for the loan.