7.2 Title Searches, Title Insurance & Marketable vs. Insurable Title
Key Takeaways
- A title search examines the chain of title in the public records; the resulting abstract and title commitment disclose the record owner, the requirements to be satisfied, and the exceptions the policy will not cover.
- Marketable title is title a reasonable, well-informed buyer would accept without fear of litigation; insurable title is merely title a title company will insure, potentially while excepting the very defect that makes it unmarketable.
- An owner's policy is issued for the purchase price and lasts as long as the insured or their heirs hold an interest; a lender's (loan) policy is issued for the loan amount and declines as the mortgage amortizes.
- Title insurance is a one-time-premium indemnity against past defects — forged deeds, undisclosed heirs, recording errors, mis-indexed liens — and includes the insurer's duty to defend; it does not insure against future events or against matters listed as exceptions.
- Standard exceptions cover off-record risks a search cannot reveal — rights of parties in possession, unrecorded easements, survey matters, and unrecorded mechanic's or construction liens — and an accurate survey plus an affidavit of title is how a buyer converts those into affirmative coverage.
The Title Search and the Chain of Title
A title search is an examination of the public records to reconstruct the chain of title — the unbroken succession of conveyances from a starting point to the present record owner. The searcher pulls deeds, mortgages and their discharges, judgments, tax records, easements, restrictions, probate records, divorce judgments, bankruptcy filings, and municipal assessments.
Two products come out of it:
- An abstract of title — a chronological digest of every recorded instrument affecting the parcel, sometimes accompanied by an attorney's opinion of title.
- A title commitment (binder) — the title insurer's promise to issue a policy on stated terms. Every broker should be able to read one:
| Schedule | Contents | What it means in practice |
|---|---|---|
| Schedule A | Effective date, policy amount, name of the proposed insured, the current record owner, and the legal description | Confirms the seller actually owns what the contract says they are selling |
| Schedule B-I (Requirements) | Items that must be produced or cleared before the policy issues — payoff letters, discharges, death certificates, corporate resolutions, the affidavit of title | The closing checklist; unresolved B-I items are why closings get postponed |
| Schedule B-II (Exceptions) | Matters the policy will not insure — recorded easements, restrictive covenants, the standard exceptions | What the buyer is agreeing to take title subject to |
Broker action point: get the commitment into the buyer's and seller's hands early. Requirements such as an out-of-state heir's signature, a discharged-but-never-recorded 1998 mortgage, or an open construction lien take weeks to resolve, not days.
Marketable Title vs. Insurable Title
These are not synonyms, and confusing them is a favorite exam item.
- Marketable title is title that a reasonable, well-informed, prudent buyer, acting on competent legal advice, would accept and pay fair value for — title free from reasonable doubt and from the threat of litigation. Nearly every residential contract obligates the seller to convey marketable title.
- Insurable title is simply title a title company is willing to insure. An insurer can issue a policy while excepting the problem, or can insure "over" it by accepting the litigation risk.
A parcel may therefore be insurable but unmarketable. If a 1961 deed in the chain was signed by only one of two record owners, the insurer may agree to insure the current buyer while excepting any claim of the missing owner's heirs. That is insurable. It is not marketable, because the buyer would have to disclose the same gap on resale.
Common defects that render title unmarketable include a break in the chain, an undischarged mortgage, an outstanding dower or curtesy interest, an unreleased judgment lien, an encroachment revealed by survey, a materially defective legal description, and a violation of a recorded restrictive covenant.
Clouds on title are removed by obtaining a quitclaim deed from the potential claimant, recording a discharge or release, or filing a quiet title action in the Superior Court, Chancery Division.
Title Insurance: Structure and Scope
Title insurance is unlike every other policy an agent's clients carry. It is retrospective: the premium is paid once, at closing, and the policy indemnifies against defects that already existed on the policy date but were unknown. Hazard insurance, by contrast, is prospective.
Owner's Policy vs. Lender's Policy
| Owner's policy | Lender's (loan) policy | |
|---|---|---|
| Insured | The buyer | The mortgagee |
| Amount | The purchase price | The loan amount |
| Duration | As long as the insured or their heirs hold an interest, and after conveyance for warranties given | Until the mortgage is paid off |
| Coverage over time | Constant | Declines with the principal balance |
| Who typically pays in New Jersey | The buyer | The buyer |
A lender's policy protects the lender only. A buyer who declines an owner's policy to save money has bought protection for the bank and none for themself — a point brokers must make plainly, in writing, and then respect the client's decision.
What Title Insurance Covers
Forged or fraudulent deeds; deeds by minors or incompetents; undisclosed or missing heirs; deeds delivered without the required authority; errors in recording or indexing; mis-indexed liens the searcher could not find; improperly executed instruments; and the insurer's duty to defend the insured's title in litigation — often worth more than the indemnity itself.
What It Does Not Cover
Defects the insured created or knew about and failed to disclose; matters listed as exceptions on Schedule B-II; zoning and building code violations (absent an endorsement); environmental conditions; and events occurring after the policy date. Coverage of governmental police-power restrictions requires specific endorsements.
The Standard Exceptions and How to Remove Them
Every basic policy excepts risks a records search cannot detect:
- Rights of parties in possession — undisclosed tenants, occupants under an unrecorded contract.
- Unrecorded easements and claims of easement.
- Survey matters — encroachments, boundary disputes, overlaps, shortages in area.
- Unrecorded mechanic's and construction liens for work already performed.
- Taxes and assessments not yet due and payable.
Two documents remove most of them. A current survey by a licensed New Jersey land surveyor lets the insurer delete the survey exception and insure boundary lines and encroachments. An affidavit of title, sworn by the seller at closing, states that the seller is in undisputed possession, that no unrecorded contracts, leases, liens, or unpaid improvements exist, that no bankruptcy or judgment is pending, and that the seller's identity matches the chain. On the strength of that affidavit the insurer deletes the possession and mechanic's-lien exceptions. If the affidavit turns out to be false, the insurer pays the insured and then pursues the seller.
New Jersey practice note: Title insurance rates in New Jersey are filed with the Department of Banking and Insurance. A reissue rate — a substantial discount — is available when the prior owner's policy is produced and the property was insured within a defined lookback period. Brokers who remind sellers to dig out the old policy save their clients real money and generate goodwill.
Compliance warning: A licensee who steers title business in exchange for anything of value implicates RESPA Section 8 and N.J.A.C. 11:5-7.2, which prohibits real estate licensees from accepting kickbacks for related-business referrals. Disclosed affiliated business arrangements are permissible; undisclosed payments are not.
A title company agrees to issue a policy on a property whose chain contains a 1961 deed executed by only one of two record co-owners, but the policy will except any claim arising from the omitted co-owner's heirs. How should this title be characterized?
A buyer purchases a home for $525,000 with a $420,000 mortgage and, to save money, buys only the lender's title policy. Three years later an undisclosed heir successfully asserts a one-third interest arising from a 1994 probate error. What is the buyer's position?
Which document does a New Jersey seller deliver at closing that allows the title insurer to delete the standard exceptions for rights of parties in possession and unrecorded mechanic's liens?