15. What does title insurance do?
Just as in the context of residential real estate, title insurance protects the insured, who can be the property owner and/or the mortgage lender, from loss due to undisclosed defects in title to real property and, for creditors, from loss due to the invalidity or unenforceability of its mortgage lien. Title insurance will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. Most policies contain a number of exceptions to the insurance policy, either specific exceptions for recorded liens, or general exceptions for issues the policy does not cover, including defects known to the insured, arising out of governmental documents not otherwise recorded, or arising out of creditors’ rights. Most title policies insure the title against both recorded and unrecorded claims, subject to stated exceptions. Coverage for unrecorded risks is beneficial because of the difficulty or impossibility of ascertaining all such risks. Many states have rating bureaus that regulate the types of policies, policy endorsements, and rates that apply to title insurance in a given jurisdiction. A creditor usually will require title insurance to insure the lien of its mortgage. Depending on the type and characteristics of the property and the loan, the creditor may also seek certain endorsements to the title policy covering a particular risk of concern to the creditor, such as insolvency. Those endorsements will affect the pricing for the policy. Endorsements may insure a whole variety of risks, including but not limited to zoning, usury, environmental liens, mineral rights, and other matters too numerous to list here. Certain endorsements are also only available in certain states or for certain types of properties or loans.