What is a Title Insurance Claim?
A title insurance claim is a request made to a title insurance company to cover a loss resulting from a title defect that existed before the policy was issued but was not discovered during the title search. Title insurance is unique among insurance products — it insures against past events (defects that already exist) rather than future events. When a previously unknown title defect surfaces after closing, the title insurance policy responds.
For real estate investors, title insurance claims provide critical financial protection against defects that could threaten your ownership or require you to pay off unknown liens. While title claims are relatively rare (the title insurance industry pays claims on approximately 5-7% of policies), the losses when they occur can be substantial.
Common title insurance claim scenarios
- Undisclosed liens: A mechanic's lien, tax lien, or judgment lien that wasn't found in the title search surfaces after closing. The title company must either pay off the lien or defend your title against it.
- Forged documents: A deed or mortgage in the chain of title was forged. The true owner emerges and claims the property was transferred without their consent.
- Recording errors: Mistakes in the public records — misspelled names, incorrect legal descriptions, improperly recorded documents — that create ambiguity about ownership or encumbrances.
- Unknown heirs: An heir who wasn't identified during a probate proceeding claims an interest in the property after you've purchased it.
- Boundary disputes: A survey reveals that your property boundaries are different from what was represented, affecting your use or value of the property.
- Easement disputes: An easement that wasn't disclosed in the title search is asserted by a third party, limiting your use of the property.
The claims process
Step 1: Notify the title company immediately. Contact the title insurance company (the underwriter, not just the title agent) as soon as you discover a potential claim. Most policies require prompt notification. Delay can jeopardize your coverage.
Step 2: Provide documentation. Submit copies of the claim or demand you received, your title insurance policy, the deed and closing documents, and any correspondence related to the issue.
Step 3: The title company investigates. The insurer reviews the claim, examines the title records, and determines whether the issue is covered under the policy. Not all title issues are covered — the policy has exclusions and exceptions listed in Schedule B that define what's not covered.
Step 4: Resolution. If covered, the title company either: defends your title in court (paying legal costs), negotiates a settlement with the claimant, pays off the lien or encumbrance, or compensates you for the loss (up to the policy limit).
For investors
Always purchase title insurance on every acquisition, even cash purchases where it's not required by a lender. The cost is modest ($1,000-$3,000 on a typical residential transaction) and the protection is permanent — an owner's title policy protects you for as long as you own the property and even after you sell (for claims arising from your ownership period). Skipping title insurance to save a few hundred dollars on a cash deal is one of the worst risk management decisions an investor can make.