What does a lender's title insurance policy cover?

A lender's title insurance policy is specifically designed to protect the lender's financial interest in the property that serves as collateral for a mortgage loan. This policy ensures that the lender is safeguarded against any title defects, liens, or claims that could arise and affect their ability to recover the loan amount in case of foreclosure. If any issues are discovered after the purchase that were not identified during the title search, the title insurance can cover the costs associated with resolving these problems, thereby protecting the lender's investment.

This type of coverage is essential because the lender relies on the title being clear to protect their financial stake in the property. In contrast, a property owner’s interest is typically covered by a separate owner's title insurance policy, which is why the option referring to property owners is not correct in this context. Other options mentioning loan repayment or property taxes do not align with the purpose of a lender's title insurance policy and thus do not accurately describe its function.