Does title insurance guarantee perfect title?
No, title insurance is nothing more than an insurance policy that provides good and marketable title to the property being insured. However, this does not mean that title insurance guarantees perfect title. As with all insurance, there are a number of different types of policies and endorsements. There are also many exceptions to title, which all tie back into information in the preliminary title commitment. These include specific exceptions listed on the property to be insured. Specifically, items listed in Exhibit B of the title commitment are pre-existing matters on the property that the title company is not insuring. The title company lists things on Schedule B to shift the burden of those problems to the buyer. Examples of items listed in Schedule B include: easements, restrictions, mineral drilling, boundary disputes and mineral or farm leases.
One standard exception, for example, is that the insurance will only be provided for exceptions to title that are reflected by the public records. Unless a special endorsement is obtained, there’s no obligation on the insurance company to insure against defects in title that would have been apparent from surveying or otherwise physically inspecting the property.
There are also different types of policies. For example, it’s customary for a seller to pay for standard coverage for the buyer that insures that the deed from the seller is conveying the title that it purports to convey, subject to exceptions in the title report. If a buyer wants additional protection against third party claims, the buyer can purchase an owner’s policy. If a loan is involved, a lender’s policy will be required that specifically insures the lender’s loan and lien position.