Real Estate Title Insurance: A Paralegal's Complete Guide

Understanding Title Insurance in Real Estate Transactions

Title insurance is one of the most important protections in any real estate transaction. Unlike other forms of insurance that protect against future events, title insurance protects against losses arising from defects in the title that existed before the policy was issued. For paralegals working in real estate law, understanding title insurance is essential for supporting closings, reviewing title commitments, and resolving title defects.

What Is Title Insurance?

Title insurance is a contract of indemnity that protects the insured party against financial loss resulting from defects in the title to real property. These defects might include errors in public records, unknown liens, forged documents, undisclosed heirs, or boundary disputes. A title insurance policy is issued after a thorough examination of the property's chain of title.

There are two main types of title insurance policies:

• Owner's policy: Protects the buyer's ownership interest for as long as the buyer (or the buyer's heirs) has an interest in the property. The premium is a one-time payment at closing.
• Lender's policy: Protects the mortgage lender's interest in the property. It is typically required by the lender as a condition of the loan and covers only the outstanding loan balance.

The Title Search Process

Before a title insurance company issues a policy, a title search must be performed. This involves examining public records to trace the history of ownership and identify any encumbrances on the property. Paralegals frequently conduct or coordinate title searches as part of the closing process.

A thorough title search typically examines:

• Deed records to verify the chain of title
• Mortgage and lien records, including tax liens and judgment liens
• Court records for pending litigation affecting the property
• Easement and restriction records
• Property tax records for delinquencies
• Survey and plat records for boundary verification

Title Commitments and Exceptions

After the title search, the title company issues a title commitment (also called a preliminary title report). This document describes the current state of the title and lists the conditions that must be met before the policy will be issued. It typically contains three schedules:

Schedule A identifies the property, the proposed insured, the type of policy, and the amount of coverage.

Schedule B-I lists the requirements that must be satisfied before closing, such as paying off existing mortgages or obtaining releases of liens.

Schedule B-II lists the exceptions to coverage, meaning title defects or encumbrances that the policy will not cover. Common exceptions include existing easements, restrictive covenants, and mineral rights reservations.

Paralegals review title commitments carefully and work with attorneys to resolve any issues identified in the schedules before closing.

Common Title Defects and How They Are Resolved

Title defects can delay or even derail a real estate transaction. Some of the most common defects include:

• Liens: Unpaid debts secured by the property, such as mechanic's liens, tax liens, or judgment liens. These are typically resolved by payment or negotiation before closing.
• Errors in public records: Clerical mistakes in recorded documents can cloud the title. Corrective instruments or court orders may be required.
• Missing heirs or undisclosed interests: If a previous owner died without a will, unknown heirs may have a claim to the property.
• Forgery or fraud: Forged deeds or powers of attorney can invalidate a transfer in the chain of title.
• Boundary disputes: Surveys may reveal that structures or fences encroach on neighboring properties.

The Paralegal's Role in Title Insurance

Paralegals are deeply involved in the title insurance process. Your responsibilities may include ordering and reviewing title searches, analyzing title commitments for defects, drafting curative documents, coordinating with title companies and lenders, preparing closing documents, and organizing post-closing recordings.

Being thorough and detail-oriented during the title review process can prevent costly disputes after closing.

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