Title Insurance Covers The Past Not The Future

Nearly every American home purchase involves a title policy bought at closing. Unlike other insurance, it insures against events that have already happened rather than events that might.

What a defect in title looks like

Ownership of land is established by a chain of recorded transfers. A break anywhere in that chain can leave a current owner with a claim against them.

Typical problems include unreleased liens from a prior owner, errors in recorded documents, forged signatures, undisclosed heirs with a claim, and easements never properly recorded.

None of these are visible to a buyer inspecting the house. They live in county records and sometimes in documents that were never recorded at all.

The search comes before the policy

Before issuing coverage, a title company examines the public record to trace the chain of ownership and identify encumbrances against the property.

Most defects found in that search are cleared before closing rather than insured around. The search is the main protective work; the policy covers what the search could miss.

Because the search is done once and the risk is fixed at that moment, the premium is paid once rather than annually.

Two policies, two beneficiaries

A lender's policy protects the mortgage lender's interest and is required by essentially every lender. Its coverage declines as the loan balance falls.

An owner's policy is separate, generally optional, and protects the buyer's own equity. Buyers sometimes assume the required policy covers them, and it does not.

The owner's policy typically lasts as long as the owner holds an interest in the property, and its cost when purchased alongside the lender's policy is usually modest.

Exclusions define what is left uncovered

Policies list exceptions, which commonly include matters an accurate survey would reveal, rights of parties in possession, zoning and building code issues, and known encumbrances.

Extended coverage endorsements can address some of these, and a current survey is often what allows the survey exception to be removed.

Reading the exceptions before closing is the step most often skipped, and it is the only place the actual scope of protection is written down.

Why practice varies so much by state

Some states run closings through attorneys, others through title or escrow companies, and rates are regulated in some jurisdictions and negotiated in others.

Who customarily pays for which policy also varies by state and even by county, and is negotiable in the purchase contract regardless of custom.

Because the rules and the customs differ and are periodically revised, a buyer with a complicated chain of title or an inherited property should involve a real estate attorney.