What does a lender's policy in title insurance primarily protect?

A lender's policy in title insurance is designed specifically to protect the lender's financial interest in a property. This insurance comes into play particularly when there are disputes related to property ownership or undisclosed claims against the title. If a title issue arises that may affect the lender's secured interest, such as liens or encumbrances not accounted for at the time of the loan, the lender's policy can mitigate financial loss.

This type of insurance does not cover the buyer's equity or the seller's responsibilities; rather, it ensures that the lender will recover their investment should a problem with the title emerge after the loan is issued. The broker’s commission is also not safeguarded by title insurance policies, as that is a separate issue related to the sale or purchase transaction itself. Thus, the lender’s policy is essential for protecting the lender’s investment and ensuring the validity of the lien they hold on the property.