Yes, title insurance covers liens, mortgages, or other claims filed in the public records against the property prior to the closing.
Here are two examples:
- A seller took out a Home Equity Line in July. The lender did not file the Security Deed/Mortgage until October 10th. The seller sold the property on October 14th. The Home Equity Line was not paid at closing because it would not have shown on the title search and the seller had forgotten about it.
- A landscaper working on the property filed a lien a week before closing for work he had done on the property. The closing went through without paying the lien.
The owner’s title insurance policy would cover both of these items for the buyer. “Gap” coverage is one more reason to make sure an owner’s title policy is part of the closing.
It’s important for buyers’ agents to have a closing attorney who can explain the whole closing process to buyers, including the protections provided by title insurance.