Title Insurance and Title Commitment Workflows

A title commitment (also called a preliminary title report or title binder) is the document issued by a title company before closing that sets forth the conditions under which a title insurance policy will be issued. The commitment has three schedules: Schedule A identifies the property, the proposed insured, the type of policy, and the amount of coverage. Schedule B-I lists requirements that must be satisfied before the policy will be issued (such as paying off existing mortgages or obtaining missing documents). Schedule B-II lists exceptions — matters that will NOT be covered by the policy.

Schedule B-II exceptions deserve careful review because they define the limits of coverage. Standard exceptions typically include rights of parties in possession, unrecorded easements, survey matters, mechanic's liens, and taxes not yet due. Extended coverage policies remove many of these standard exceptions, providing broader protection at additional cost. Buyers should understand what is and is not covered before relying on title insurance for protection.

Two types of title insurance policies are issued in most transactions: an owner's policy that protects the buyer, and a lender's policy (also called a loan policy) that protects the mortgage lender. The lender's policy is almost always required as a condition of the loan and protects only the lender's security interest, which diminishes as the loan is paid down. The owner's policy is optional but strongly recommended — it protects the owner's equity and remains in effect for as long as the insured or their heirs have an interest in the property.

Title insurance is a one-time premium paid at closing, not an ongoing annual charge. The premium is typically based on the purchase price or loan amount, and rates vary by state. In some states, the buyer customarily pays for the owner's policy while the seller pays for the lender's policy; in others, this allocation is negotiable. Unlike casualty insurance, title insurance premiums are not risk-based at the individual property level — all properties in a given price range pay the same premium.

If a title defect is discovered after closing, the insured files a claim with the title insurance company. The company may cure the defect (for example, by paying off an undiscovered lien), defend the insured in litigation, or pay the insured for their loss up to the policy amount. The claims process typically begins with written notice to the title company, followed by an investigation of the claim, and a coverage determination.

Common title claims include undisclosed liens, forged documents in the chain of title, errors in the legal description, missing heirs who emerge to claim an interest, and improperly executed documents. It is important to note that title insurance does not cover defects that the insured knew about before the policy was issued, matters that are excluded from coverage by Schedule B-II exceptions, or matters arising after the policy date.