Title Insurance

Title insurance is a one-time policy that indemnifies the holder against financial loss caused by defects in a property's title that existed at the time of the transaction but were not discovered during the title search. Unlike other forms of insurance that protect against future events, title insurance protects against past events — forged deeds, undisclosed heirs, recording errors, fraudulent liens, and other hidden defects that a thorough search of public records may not reveal. There are two types of title insurance policies: an owner's policy, which protects the property buyer, and a lender's policy, which protects the mortgage holder.

For mortgage note investors, the lender's policy is the relevant coverage. When a loan was originated, the lender typically required a lender's title insurance policy as a condition of funding. That policy protects the lender — and by extension, subsequent holders of the note through assignment — against covered title defects up to the original loan amount. During due diligence, note investors should confirm that a lender's title policy was issued at origination and review it for exceptions (specific risks the policy does not cover). When acquiring properties through foreclosure as REO, investors often purchase a new owner's policy to protect their ownership interest going forward, since the lender's policy terminates when the note is satisfied or the property changes hands.