Title insurance, explainedThe search behind it, the two policies, and the limits written into both

The State Corporation Commission's consumer guide starts where most buyers never think to start: "Title is a term that encompasses a bundle of rights in real property." So the useful question is which of those rights a title policy actually stands behind.

Virginia's insurance code answers in one definition. Under Va. Code 38.2-123, title insurance means insurance "against loss by reason of liens and encumbrances upon property, defects in the title to property, and other matters affecting the title to property or the right to the use and enjoyment of property." Three things sit inside that sentence: liens and encumbrances, defects in the title itself, and anything else that affects title or your right to use and enjoy the land.

Notice the word loss. A policy does not make a flawed title sound. It is a contract to cover loss from the kinds of problems the definition names, on the terms the policy sets out. The company on the other side of that contract is, under Va. Code 38.2-4601, a company licensed to transact title insurance, or one that is transacting it.

That is a different promise from the one a seller makes in a deed. A general warranty deed carries the grantor's own covenant to warrant and defend the property; a title policy is an insurer's obligation, bought separately, and the two can sit side by side on the same purchase.

A financed purchase can involve two policies on the same land, and the SCC guide separates them by who is named on each.

The buyer may purchase an owner's policy, and the buyer is the named insured on it. The buyer's lender will require a loan policy, and the lender is the named insured on that one. The guide does not describe the owner's policy as required; it describes it as something a buyer may buy.

The ending is the part owners forget. Because an owner's policy cannot pass to the next owner, a buyer of land that was insured years ago gets no coverage from the old policy and, wanting coverage, buys a new owner's policy. Whether a buyer of vacant ground usually takes an owner's policy is answered in what title insurance on land covers.

A title policy is aimed at the past. The SCC guide says title insurance covers problems or hidden risks that occurred before you took title to the property but still affect your ownership rights.

That is why the search matters so much: the policy is aimed at problems that arose before the purchase, including what the guide calls hidden risks, rather than at what someone does to the land afterward. A lien filed years after closing over work you ordered is a different kind of risk, and the policy's own terms decide how it is treated.

The guide then draws the edge plainly. Losses listed under a policy's exclusions and exceptions are not covered. What those exclusions and exceptions are is written into each policy, so the list that matters is the one in the policy on that purchase.

Among the benefits the guide lists is payment of your legal expenses if the title insurance company is required to defend your title against covered claims. The word covered carries the weight in that sentence: a defense is owed on claims the policy covers, not on every dispute over the land.

• Covered, in the guide's description: problems that arose before you took title and affect your ownership rights, and the cost of defending title against covered claims.
• Not covered: losses listed under the policy's exclusions and exceptions.
• Read on the policy itself: which exceptions a specific policy carries, which the title insurer or the settlement agent can walk through before closing.