Key Takeaways
- Title searches cover 40-60 years of records; the Title Commitment specifies conditions and exceptions for insurance issuance.
- Schedule B-II exceptions define what title insurance will NOT cover — review every exception with your attorney.
- Owner's title insurance is optional but strongly recommended; enhanced ALTA policies provide the broadest protection.
- Escrow holders have fiduciary duties to all parties — earnest money disputes are resolved by mutual agreement, mediation, or interpleader.
Title companies and closing attorneys are the backbone of transaction security — they verify ownership, identify defects, issue insurance against undiscovered claims, and manage the closing process. Understanding how title searches work, what title insurance covers, and the critical role of escrow management transforms you from a passive participant to an informed consumer of these essential services.
The Title Search Process and Title Commitment
A title search examines the public record history of a property to verify ownership and identify any claims, liens, or encumbrances that could affect the buyer's title rights. The search typically covers 40-60 years of recorded documents at the county recorder's office, including deeds, mortgages, judgments, tax liens, mechanic's liens, lis pendens (pending lawsuits), easements, and restrictive covenants.
The title search produces a Title Commitment (also called a preliminary title report or title binder) — a document that specifies the conditions under which the title company will issue a title insurance policy. The commitment has three key sections: Schedule A identifies the proposed insured, the type of policy, the property description, and the vesting (how ownership will be held). Schedule B-I lists requirements that must be satisfied before closing (e.g., payoff of existing mortgage, release of liens). Schedule B-II lists exceptions — items that will not be covered by the title insurance policy (e.g., survey matters, utility easements, mineral rights).
Buyers should review the title commitment carefully, paying special attention to Schedule B-II exceptions. Standard exceptions (taxes, survey matters, general easements) are normal. Non-standard exceptions (specific liens, encroachments, boundary disputes, access restrictions) may require resolution before closing. Your attorney or title officer should explain every exception and advise on whether any require action.
Title Insurance and Escrow Management
Title insurance protects against losses from defects in title that were not discovered during the title search. Unlike most insurance (which protects against future events), title insurance protects against past events — forged signatures, undisclosed heirs, recording errors, and fraud that occurred before the policy date. Two types of policies exist: the lender's policy (required by all mortgage lenders, protects only the lender's interest) and the owner's policy (optional but strongly recommended, protects the buyer's equity).
Title insurance is a one-time premium paid at closing. Costs vary by state and property value but typically range from $1,000 to $3,500 for residential properties. Enhanced (ALTA) policies provide broader coverage than standard policies, including post-policy defects such as building permit violations, encroachments, and certain access issues. For investment properties, the enhanced policy is worth the incremental cost.
Escrow management is the title company's or closing attorney's responsibility for holding and disbursing transaction funds. Earnest money, down payment proceeds, loan funds, and seller proceeds all flow through the escrow account. The escrow holder has a fiduciary duty to all parties — they cannot release funds without proper authorization from all parties or as directed by the settlement statement. Escrow disputes (disagreements over earnest money refund or release) are resolved through mutual agreement, mediation, or interpleader action (where the escrow holder deposits funds with the court and lets a judge decide).
| Coverage | Lender's Policy | Owner's Policy | Enhanced (ALTA) Owner's |
|---|---|---|---|
| Protects | Lender's loan amount | Buyer's equity | Buyer's equity (broader) |
| Required | Yes (by all lenders) | No (recommended) | No (recommended for investors) |
| Duration | Until loan is paid off | As long as owner has interest | As long as owner has interest |
| Forged Documents | Covered | Covered | Covered |
| Recording Errors | Covered | Covered | Covered |
| Building Permit Violations | Not covered | Not covered | Covered |
| Encroachments (post-policy) | Not covered | Not covered | Covered |
| Typical Cost | $500-$1,500 | $1,000-$3,000 | $1,200-$3,500 |
Title insurance policy comparison
Guided Practice: Reviewing a Title Commitment
You receive a title commitment for a rental property purchase. The document is 12 pages long.
- 1Schedule A: Verify the property legal description matches the contract. Confirm the proposed vesting (your name or LLC) is correct.
- 2Schedule B-I: Review all requirements. Confirm existing mortgage payoff is listed. Verify no outstanding judgment releases are needed.
- 3Schedule B-II: Read every exception. Standard exceptions (property taxes, utility easements, mineral reservations) are typically acceptable.
- 4Flag any non-standard exceptions: "Easement recorded in Book 123, Page 456 granting access to Parcel B across the subject property." Ask your attorney to review the actual easement document.
- 5Confirm both lender's and owner's title insurance will be issued. Request a quote for enhanced (ALTA) coverage.
- 6Compare the legal description to the survey (if available) to verify consistency.
Key Takeaways
- ✓Title searches cover 40-60 years of records; the Title Commitment specifies conditions and exceptions for insurance issuance.
- ✓Schedule B-II exceptions define what title insurance will NOT cover — review every exception with your attorney.
- ✓Owner's title insurance is optional but strongly recommended; enhanced ALTA policies provide the broadest protection.
- ✓Escrow holders have fiduciary duties to all parties — earnest money disputes are resolved by mutual agreement, mediation, or interpleader.
Sources
- ALTA — Title Commitment Guide(2025-01-15)
- CFPB — Understanding Title Insurance(2025-01-15)
Common Mistakes to Avoid
Skipping owner's title insurance to save the one-time premium cost.
Consequence: Without an owner's policy, the buyer has no title insurance protection for their equity. If a title defect surfaces after closing (undisclosed lien, forged deed, boundary dispute), the buyer bears the full financial and legal cost of resolution.
Correction: Always purchase owner's title insurance. The one-time premium (typically $500-$2,000 for residential) protects the buyer's entire equity position for as long as they own the property. Consider enhanced ALTA coverage for broader protection.
Not reading Schedule B-II exceptions line by line.
Consequence: Non-standard exceptions may significantly impact property use — easements allowing third-party access, restrictive covenants limiting development, or mineral reservations permitting surface disruption.
Correction: Read every Schedule B-II exception and ask your attorney to review any that are not standard. Request copies of the actual documents referenced in non-standard exceptions to understand their full impact.
Test Your Knowledge
1.What are Schedule B-II exceptions in a title commitment?
2.What is the difference between a lender's title policy and an owner's title policy?
3.When an earnest money dispute arises, how is the escrow holder required to handle it?