Purchasing a home or commercial property may be one of the largest investments you will ever make. Before you receive the keys, however, an important question must be answered:
Does the seller have the legal right to transfer clear ownership of the property to you?
That is where title insurance comes in.
What Is Title Insurance?
“Title” represents your legal ownership of real estate. Before settlement, a title professional searches public records to review the property’s ownership history and identify issues that could affect your rights.
The search may uncover:
- Unpaid mortgages, taxes, judgments, or liens
- Errors in deeds or public records
- Missing signatures or improperly executed documents
- Estate, divorce, bankruptcy, or inheritance issues
- Easements, restrictions, or boundary concerns
- Claims by missing heirs or prior owners
- Forgery, fraud, or seller-impersonation concerns
The title company works to resolve identified problems before settlement. Title insurance then provides protection against certain covered title defects that were unknown or could not be resolved before the policy was issued.
Unlike homeowners or automobile insurance, which primarily protects against future events, title insurance generally protects against covered ownership problems connected to the property’s past. It is usually purchased with a one-time premium at settlement.
Pennsylvania: The Birthplace of Title Insurance
Title insurance has deep Pennsylvania roots.
Its development is commonly linked to the 1868 Pennsylvania Supreme Court case Watson v. Muirhead. The case demonstrated that a traditional title search and professional opinion did not always provide a property buyer with adequate financial protection when an ownership problem was missed.
In response to the need for stronger consumer protection, Pennsylvania authorized the incorporation of title insurance companies in 1874. On March 28, 1876, a group of Philadelphia conveyancers formed the first title insurance company. The first policy reportedly insured a Philadelphia property for $1,500. Pennsylvania therefore holds an important place in the history of title protection in the United States.
Lender’s Policy vs. Owner’s Policy
There are two primary types of title insurance.
Lender’s Title Insurance
When a buyer obtains a mortgage, the lender will generally require a lender’s title policy. This policy protects the lender’s financial interest in the property—not the buyer’s ownership interest.
The coverage normally decreases as the mortgage balance is paid down and ends when the loan is satisfied.
Owner’s Title Insurance
An owner’s policy protects the buyer’s financial investment and ownership rights, subject to the policy’s terms, exclusions, exceptions, and coverage limits.
If a covered title claim arises, the title insurance underwriter may provide a legal defense and pay covered losses up to the policy limit. Owner’s coverage typically continues for as long as the insured owner retains an interest in the property, subject to the policy provisions.
The Consumer Financial Protection Bureau explains that a lender’s policy protects the creditor, while an owner’s policy protects the consumer’s investment. An owner’s policy is generally optional, but without one, the buyer may be responsible for the expense of defending an ownership claim.
A lender’s policy protects the mortgage. An owner’s policy protects the homeowner.
What Coverage Is Important?
Not every title policy offers exactly the same protection. Buyers should ask about the differences between standard and enhanced owner’s coverage.
Depending on the policy and underwriter, enhanced coverage may provide additional protection involving:
- Certain forgery, fraud, or impersonation claims
- Some boundary-line or encroachment matters
- Certain building-permit or zoning issues
- Post-policy events covered by the policy
- Increased coverage as the property appreciates
Coverage varies, so buyers should carefully review the title commitment and proposed policy. Pay particular attention to the exceptions listed in the commitment. These identify matters the policy may not insure, such as recorded easements, restrictions, rights of others, survey matters, or other property-specific concerns.
Price is important, but so are experience, communication, security, problem-solving ability, and the strength of the title underwriter.
Your Right to Choose
Many buyers assume they must use the title company recommended by the real estate agent, lender, builder, seller, or another party. Recommendations can be helpful, but consumers should understand their ability to shop for settlement services and ask questions before accepting a referral.
Under the federal Real Estate Settlement Procedures Act, a seller generally may not require a homebuyer to purchase title insurance from a particular company as a condition of the sale.
A lender may establish reasonable requirements for a title provider, including appropriate licensing and underwriting standards. Buyers should review their agreement of sale, Loan Estimate, and lender requirements, then ask whether the title and settlement services are listed as services they may shop for.
Before choosing a title company, consider asking:
- Is the company or agent properly licensed in Pennsylvania?
- Who will personally manage my transaction?
- How quickly will the title search and commitment be completed?
- How are liens, judgments, estate issues, and other problems handled?
- What secure procedures are used to prevent wire fraud?
- Will someone explain the title commitment and policy exceptions?
- Is the company prepared and available when settlement is scheduled?
- Does it offer both standard and enhanced owner’s coverage?
- Who is the title insurance underwriter?
The Pennsylvania Insurance Department provides tools for consumers to research licensed insurance companies, producers, and agents.
The Right Title Partner Makes a Difference
Title insurance is more than a document issued after settlement. The work performed before closing—including the title search, examination, problem resolution, document preparation, secure handling of funds, recordation, and issuance of the final policy—helps protect the entire transaction.
You have the right to ask questions. You have the right to understand your coverage. And in many transactions, you have the opportunity to choose the title company you trust.
Written by
Chris Beisel
PA Licensed Title Agent/Agency Manager
Property Search and Settlement, Inc.