Title Insurance and Title Search
Title Insurance and Title Search
A title search is a legal investigation into the property's ownership history, conducted by a title company before closing. Title insurance protects you from future claims that someone else owns part or all of the property, or that undisclosed liens exist. Together, they ensure you own what you think you own.
Key takeaways
- A title search costs $200–$400 and typically uncovers liens, easements, or prior claims that must be cleared before closing.
- Title insurance is a one-time premium (typically 0.5–1% of the purchase price) that protects against ownership disputes, lost deeds, forgery, and undisclosed heirs for as long as you own the property.
- Owner's title insurance protects the buyer and is required by lenders; lender's title insurance protects the lender and is also required by most mortgage companies.
- Title defects—unpaid property taxes, contractor liens, divorce judgments, or forged deeds—can be catastrophic if discovered after closing; title insurance prevents total loss.
- Some title issues can be cured before closing (liens paid off); others require title insurance to insure around the defect.
What is a title search and why it matters
The title company's job is to confirm that the seller has the legal right to sell the property and that the property is free from claims. They do this by examining decades of property records: deeds, mortgages, judgments, tax records, and court filings.
The search looks for:
Ownership chain. Does the current seller actually own the property? Did the previous owner transfer it legally? Is there a complete chain of title from decades ago to today?
Liens and encumbrances. Are there unpaid property taxes? Contractor liens from unpaid renovation work? Judgment liens from lawsuits? Mortgages that haven't been discharged? Easements (like a utility company's right to access buried cables)?
Covenants and restrictions. Are there deed restrictions limiting the property's use (e.g., "no mobile homes," "no commercial use")? Homeowners association liens?
Prior claims. Have prior owners filed claims to the property? Are there undisclosed heirs or ex-spouses with potential claims?
The title search typically takes 7–10 days. Once complete, the title company issues a preliminary title report (prelim), listing all findings. Any liens or claims must be cleared before closing.
Common title defects and how they're fixed
Unpaid property taxes. The seller owes back taxes from prior years. This is almost always cured: the seller's attorney ensures the taxes are paid from the sale proceeds at closing. The buyer never bears this cost.
Contractor lien. A contractor who renovated the home was never paid. They filed a lien against the property. The title company won't insure over this; the lien must be paid off or released before closing. Usually, the seller pays from proceeds. If the seller claims the contractor was already paid, the contractor may have failed to file a lien release (also a title issue to resolve).
Mortgage not discharged. The seller's old mortgage from a prior refinance wasn't properly discharged. This is resolved by providing a deed of release from the old lender or paying off the mortgage from closing proceeds. It's typically cleared easily.
Easement. A utility company has an easement across the property for underground cables or a neighbor has an easement across the property for a driveway. Easements are usually acceptable and won't prevent closing, but they should be disclosed and understood. A drainage easement means a neighbor's storm drain runs under your yard; you can't build a pool there.
Survey discrepancy. The deed describes the property boundaries one way, but a survey shows different lines. Title insurance can insure over minor discrepancies, but major discrepancies (e.g., a neighbor's fence is 10 feet inside your property line) require resolution before closing.
Forged deed or fraud. In rare cases, a deed in the chain is forged, or the property was transferred fraudulently. This is catastrophic: you buy the home, move in, and years later discover you don't actually own it. Title insurance protects you from this.
Undisclosed heirs. The person who sold the property wasn't the sole owner; an undisclosed heir or ex-spouse has a claim. Years later, they surface and demand ownership or payment. Title insurance protects you.
Title insurance: the two types and what they cover
Owner's title insurance protects you, the buyer. It's issued for the purchase price and covers you for the entire time you own the property. Cost: typically 0.5–1% of the purchase price (around $2,500–$5,000 for a $400,000 purchase). In some states (e.g., New York), the seller traditionally pays. In others (e.g., Florida), the buyer pays. This is usually negotiable.
Lender's title insurance protects the mortgage lender. It's required by virtually all mortgage companies, even though lenders have a first lien position and would be paid first in a default. The lender's policy typically costs 20–30% less than the owner's policy and covers only the lender's interest (the loan balance), not the full property value. The buyer typically pays for this, though it's sometimes negotiated into the purchase price.
Both policies are one-time premiums; once paid at closing, they're in effect forever (for owner's) or until the loan is paid off (for lender's). Unlike homeowners insurance, you never pay renewal premiums.
What title insurance covers
Owner's title insurance protects you against:
- Forged or fraudulent deeds. Someone forged a deed and transferred the property fraudulently. Title insurance covers the cost of defending your ownership or awards compensation if you lose.
- Undisclosed liens. A contractor lien, tax lien, or judgment lien exists that was missed by the title search. Insurance covers your defense or compensates you for loss.
- Undisclosed heirs or marital claims. An ex-spouse or undisclosed heir claims ownership. Insurance covers legal defense and potential settlement.
- Lost or destroyed deeds. Critical documents were lost, and the chain of title can't be fully proven. Insurance covers the legal cost of establishing your title despite missing records.
- Unrecorded easements or covenants. An easement or covenant existed but wasn't recorded in the public records. Insurance covers resulting losses (e.g., a neighbor claims a right-of-way across your property).
Title insurance does NOT cover:
- Issues that existed at the time of purchase and were known (these should have been disclosed or addressed before closing).
- Loss due to the owner's own actions (e.g., you fraudulently sell to someone else and title insurance covers their claim).
- Building code violations or zoning non-compliance (this is a structural/legal issue, not a title issue).
- Your own poor record-keeping after purchase (e.g., you lose your deed).
Why title insurance is underrated
Most buyers regard title insurance as a bureaucratic cost, like closing-cost padding. In reality, it's catastrophic-loss insurance. A forged deed, an undisclosed heir, or an old contractor lien discovered after closing can cost $50,000–$500,000 in legal fees and settlement to resolve—or result in loss of the home entirely. Title insurance prevents this.
The probability of a claim is low (roughly 1–3% of all homes have a title issue serious enough to make a claim), but the magnitude of loss is enormous. That's the definition of insurance you need.
In the event of a claim, the title company—not you—hires attorneys and manages defense. If you lose the legal battle, the insurance covers your settlement up to the policy limit (the purchase price).
The timeline: title search and insurance in the home-purchase process
Related concepts
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Title insurance protects your ownership of the property itself. Homeowners insurance protects the physical structure and its contents. You'll need both before moving in; most lenders require proof of homeowners insurance before releasing funds at closing.