How Title Underwriting Works

Before a sale is officially closed and title insurance is issued, a property must go through the underwriting process. This is a vital component of a real estate transaction because we cannot complete the sale without this due diligence.

A title insurance underwriter is responsible for checking title to the property to ensure ownership, rights and compliance with real estate laws. They evaluate your property’s history and the title company’s research of the chain of title, looking for anything that could present challenges with ownership and/or owner’s rights. Common issues with titles could include defects such as:

• Legal description problems

• Liens or Judgments attaching to the property

• Omitted heirs, unreleased marital rights, rights of minors,

• Defective former deeds in the chain of ownership

To ensure a clear title, the title insurance underwriter must pay particular attention to public records like deeds, marriage certificates, wills, and other documents found by the title searcher in order to identify and help cure defects that could impact the owner’s rights to the property in question. The title underwriter may also need to draw on other sources of data necessary to resolve and cure problems discovered during the search process.

The underwriter also looks for common issues like liens or judgments attached to the property, legal description errors, deed mistakes, unreleased marital rights, rights of heirs or minors, etc. To ensure a clear title, issues like boundary disputes, divorces, probate proceedings, adverse possession, bankruptcies, and more must be addressed to determine the significance of risk.

After evaluating the title risk, the underwriter may seek ways to mitigate a risk, if possible, and will ultimately decide whether to insure the title to the property. We all want to protect a buyer from closing on a property that does not have clear title.

An underwriter authorizes the title company to write the title insurance policy, assumes the financial risk and insures the property against insurance defects. The title insurance underwriter will then legally defend the property owner if any undetected issues arise with the title. In simple terms, the title company sells the title insurance policy and the underwriter determines whether they should and will sell that coverage.  

Title companies and underwriters are cautious because a simple mistake can lead to paying out thousands of dollars on a title insurance policy. Every title insurance policy carries a risk that the customer will file a claim — a potential loss to the insurer.

Title companies must be diligent and knowledgeable to comply with state and federal regulations and to also conform to their underwriter’s standards. Avoiding claims and issuing marketable title is the goal of every title company.