What is the danger of loss?

As an example, assume real estate was purchased for $100,000. A down payment of $20,000 is made, and a lender holds an $80,000 mortgage lien, or beneficial interest. The lender acquires title insurance protecting its interest up to $80,000. But the purchaser's down payment of $20,000 is not covered.

What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title, and the twenty thousand dollar down payment plus any additional equity built up over time.

The title insurance company pays the lender's loss and is entitled to take an assignment of the borrower's debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property. And the balance on the loan is still due!