What is Title Insurance?

Title Insurance is a title company's guarantee that title to a parcel of real estate is affected only by matters shown on a written report. A title company reports only matters shown in the public records of the county where the real estate is located. These matters are referred to as exceptions to title. Examples include easements, deeds of trust, mortgages, Superior Court judgments, mechanic's and materialmen's liens, and government liens, such as those filed by the Internal Revenue Service, Washington's Department of Revenue, and Washington's Department of Social and Health Services.

If the title company does not report a matter of public record, the title company will pay the insured's damages. Often, this is the reduction in value of the property due to the exception or the amount required to pay off a financial lien. The title company may also provide an attorney to help you in litigation, depending on policy provisions.

In an earnest money agreement, title insurance is used to identify creditors who must be paid off at time of closing so that the sellers can give clear title to the buyer. This is an owner's policy. A lender's policy can be issued to the buyer's lender. If seller financing is involved, it is advisable for the seller to obtain a lender's policy.

Also, when issuing a policy pursuant to an earnest money agreement, the title company will report not only existing exceptions to title but matters, such as judgments or liens against the buyer, which would become exceptions if the buyer purchases the property. If seller financing is requested, the seller must make certain that any deed of trust or real estate contract the buyer gives to seller will not be inferior to those exceptions.

A standard policy of title insurance guarantees title but does not guarantee the property boundaries. If the buyer wants protection against claims by neighboring property owners to part of their land, the buyer must order an extended policy of title insurance. Extended coverage costs more, and a survey may be required. Buyers who want extended coverage should call several title companies, because some are less likely to require surveys than others.