Every property has a history of ownership outlined among local public records. When a property is sold, this history is reviewed to assure that the current seller has title and the right to sell the property.
The catch is that property records may not record all possible title defects or claims. For instance, a prior owner may have been drunk, drug user, bigamist, or lacking the mental capacity to sell a property interest. A lien against the property may have been missed in the title search.
Because of these and other problems, lenders require that buyers purchase title insurance — except in Iowa. In Iowa, the state has established a “guarantee” program to protect consumers against title defects. The guarantee program is funded by fees from closing agents.