Whether you’re investing in residential or commercial real estate, once you finalize your agreement of sale, one of the most critical steps in your due diligence process is securing real estate title insurance. In Pennsylvania, unless you’re buying a property with cash, lenders title insurance is not only standard—it’s required. Here’s what you need to know about how Pennsylvania title insurance protects both you and your lender.
What is title insurance?
When seeking to purchase or take legal ownership of a property, you are essentially acquiring the rights to the land and any structures on it via a “title.” In real estate, “title” to a property is usually transferred through a deed.
To help ensure there are no liens or claims that affect the buyer’s use or enjoyment of the real estate, a title search is conducted by a title company. Within the search, the title company reviews public records such as deeds, mortgages, court judgments, tax records, estate documents, and divorce decrees, disclosing important things impacting the property’s future use, such as utility easements or deed restrictions, like adding a pool at a residence or in certain commercial adaptive reuse projects.
Amidst this process, title insurance is designed to safeguard this ownership by providing protection against potential issues that may arise with the property’s title now or down the road, protecting both buyer and lender (if a property loan or mortgage is extended) from financial loss sustained from defects in a title to a property.
Types of Title Insurance
There are two types of title insurance policies:
- Lender’s Policy: Required by banks or mortgage lenders, this policy protects their interest in the property in case a title issue affects their lien.
- Owner’s Policy: Optional but highly recommended, this protects the buyer individually. While you’re not legally obligated to purchase an owner’s policy in Pennsylvania, most real estate law professionals in PA strongly encourage it.
As the buyer, you have the legal right to choose your own title agent or title company—your lender, realtor, or builder cannot require you to use a specific one.
What does title insurance cover?
If the title search finds certain issues, the title company will attempt to fix them before the closing. In Pennsylvania, which is an all-inclusive rate state, your title insurance covers:
- Title search and land record examination
- Escrow and settlement services
- Issuance of the lenders title insurance and/or owner’s title policy
Residential real estate attorneys may serve as licensed title agents or employ one in their firm. Regardless of where you receive title insurance, the cost is the same across the Commonwealth, as per the Pennsylvania Department of Insurance. Unlike other types of insurance (auto or property insurance), there are no monthly or annual premiums for title insurance – the buyer pays one “premium” or one-time lump sum at the time of the closing.
Some of the most common issues uncovered by title agents or agencies include:
- Conflicting wills or missing heirs
- Errors in public records
- Old tax claims
- Child support liens
- Unpaid contractor bills
- Unpaid condominium or association assessments
- Outstanding judgments
In commercial real estate transactions, i.e., when you buy real estate from a corporation or an LLC, title insurance will also provide coverage, making sure that the people signing the documents have the legal authority to do so. Sometimes, you may need to buy additional “endorsements,” special coverage issued by the title company. These are most often required by banks for things like condominiums or surveys.
Title insurance aims to shield residential and commercial property owners from financial loss due to these unforeseen problems. Without it, buyers risk inheriting the debts or legal complications, like the ones noted above, associated with the property’s past.
What isn’t covered by title insurance?
Title insurance policies have specific “exceptions” to be listed within the policy period. These are things that are not covered by the title insurance policy. Exceptions will include any publicly recorded easements or deed restrictions at the time of purchase, such as:
- Deed restrictions: For instance, if a prior owner filed a restriction banning above-ground pools, this would be listed as an exception. If you later try to build a pool and are denied, your title insurance won’t cover it.
- Utility easements: If there’s an old easement allowing utility lines and you unknowingly build in that zone, any damage caused during utility work will not be covered under your policy.
A title company’s job is to make sure that the title is “insurable.” A real estate attorney’s job is to go beyond that and make sure that there are no issues impacting your use of the property.
Reviewing the exceptions to an insurance policy is one of the best values an experienced real estate attorney can bring to a transaction. The title insurance policy is typically issued after the closing, offering ongoing protection to the property owner.
Legal support real estate transactions and title issues
Despite the protective measures offered by title insurance, challenges and disputes can still arise. In such cases, a real estate attorney may enlist the support of litigation services to resolve any title issues.
Attorneys in our Real Estate, Land Use & Development team are here to help you navigate your residential and commercial transactions. Whether you’re the buyer or seller or have questions about your unique situation, please reach out to us.
