A policy that protects a lender against loss if its mortgage turns out not to have the lien priority it expected, or if title to the property is defective.
Before it lends against real estate, a lender wants proof that the borrower owns the property and that the new mortgage will rank where the lender expects, usually first. A title company searches the public records, lists what it finds, and issues a policy to the lender that pays if a covered defect or an earlier lien surfaces later. The owner’s policy is a separate document that protects the buyer.
The OCC handbook lists a title insurance policy among the documents a bank’s file should contain for an income-producing property, and says staff should confirm that the property description is identical across the mortgage, the title policy, the survey and the tax statement.
Construction adds a step. Contractors and suppliers who are not paid can file mechanics liens, and the handbook notes that in some jurisdictions those liens can take priority over the bank’s. So the lender’s policy should be updated with each draw, with the title company confirming no liens are outstanding. The handbook also says title insurance can protect the lender from losses due to fraud and construction liens.
The borrower normally pays the premium at closing. Order the title commitment early: old liens and easements take time to clear.
How it shows up in the data here
Not in the data. Title policies are private documents, and no filing on this site refers to them. For banks and credit unions that fund construction, where title updates happen at every draw, see construction lenders. For other commercial property, see investor CRE lenders.
Go further
- Construction lenders: Banks and credit unions with construction and land loans.
- Investor CRE lenders: Banks and credit unions holding loans on rented commercial property.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- What a lender-ready loan package looks like: A lender decides in minutes whether to keep reading. A package that answers the first five questions on one page, and backs each answer with a document, gets read.
Related terms
- Construction draw: One advance of construction loan money, released after the lender confirms that the work it pays for is in place.
- Phase I environmental site assessment: A study of a property's records, history and visible condition by an environmental professional to identify likely contamination, done without sampling soil or water.
- Appraisal: A written, independent opinion of a property's market value as of a specific date, prepared by a qualified appraiser.
- UCC lien: A lender's claim on business assets other than real estate, made public by filing a financing statement under Article 9 of the Uniform Commercial Code.
- Payment and performance bond: Two surety bonds on a construction contract: one backs payment of subcontractors and suppliers, the other backs completion of the work.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.