Title commitments and title insurance for private lenders

Before a private real estate loan closes, a title company searches the property's public records and issues a title commitment: a promise to issue a title insurance policy once certain conditions are met. At closing, the lender receives a lender's title policy that insures its lien position against covered title problems. Together they answer the question every lender and capital partner needs answered: does this loan really have the lien we think it has?

This guide explains how to read a title commitment, what a lender's policy covers, and the title issues to catch before closing.

The title commitment, section by section

Title commitments are commonly issued on standard forms published by the American Land Title Association (ALTA), though local practice varies. Most have these parts.

Schedule A: the basics

• Proposed insured: the lender, named correctly, usually with "its successors and/or assigns" so the policy follows the loan if it's sold. That matters for loan sales; see what a whole loan sale is.
• Proposed policy amount: usually the loan amount.
• Current owner of record: should match the seller on a purchase, or the borrower on a refinance.
• Legal description: should match the appraisal, survey and loan documents.

Schedule B, Part I: requirements

These are the things that must happen before the policy is issued. Typical requirements include:

• Recording the lender's mortgage or deed of trust.
• Paying off and releasing existing mortgages and liens.
• Providing entity documents showing who can sign for the borrower.
• Paying delinquent property taxes.
• Releasing judgments or other recorded claims.

Every requirement should be satisfied, or clearly assigned to someone, before closing.

Schedule B, Part II: exceptions

These are the items the policy won't cover. Some are standard (rights of parties in possession, matters a survey would show), and some are specific to the property:

• Easements and rights of way.
• Recorded restrictions and covenants.
• Existing leases.
• Liens that won't be paid off at closing.
• Pending litigation affecting the property.

Read every specific exception. An exception for an existing mortgage that isn't being paid off means your loan is not in first position. Our guide to first lien vs. second lien explains why that matters.

What a lender's title policy covers

A lender's policy generally insures, subject to its terms and exceptions:

• That the lender's lien is valid and enforceable.
• The lien's priority over other recorded interests, except those listed as exceptions.
• Losses from covered defects such as forged documents, errors in the public record or undisclosed liens.

Endorsements extend coverage for specific risks, such as the property's address and improvements, zoning, environmental liens or, on construction loans, mechanics' liens and future advances. Which endorsements are available varies by state and insurer.

Owner's policy vs. lender's policy

	Owner's policy	Lender's policy
Protects	The property owner	The lender (and its successors and assigns)
Amount	Usually the purchase price	Usually the loan amount
Lasts	As long as the owner holds the property	Until the loan is repaid
Required by lenders?	No, the borrower's choice	Almost always

Title issues that delay or derail loans

Issue	What it looks like	Fix
Unreleased old mortgage	A paid-off loan never released of record	Obtain a release from the old lender or its successor
Judgment against the owner	Recorded judgment that attaches to the property	Pay off and release at closing
Unpaid property taxes	Delinquent taxes, which can outrank the mortgage	Pay at closing
Mechanics' liens	Unpaid contractors on a renovation	Pay and release, or bond around
Vesting mismatch	Property titled to a different entity than the borrower	Deed to the correct borrower, or restructure the loan
Break in the chain of title	A missing or defective prior deed	Corrective documents, sometimes a quiet title action
Wire fraud attempts	Changed payoff or wiring instructions	Verify wiring instructions by phone with known contacts

Construction loans need extra care

On construction and renovation loans, title risk continues after closing. Unpaid contractors can file mechanics' liens, and in some states those liens can take priority based on when work began. Lenders commonly:

• Use endorsements that cover future advances where available.
• Order title updates (date-down endorsements) before construction draws.
• Collect lien waivers with each draw.

See construction draw management for the full process.

What capital partners should check

• The commitment and final policy name the lender with "successors and/or assigns" language.
• Schedule B, Part I requirements were all met at closing.
• Schedule B, Part II exceptions contain no prior liens or other surprises.
• The policy amount matches the loan amount.
• Endorsements suit the loan type, especially on construction loans.

A complete file includes the commitment, the pro forma or final policy and the recorded mortgage or deed of trust. See what goes into a complete private loan file.

Key takeaways

• A title commitment shows what's recorded against the property, what must happen before closing and what the policy won't cover.
• A lender's title policy insures the validity and priority of the lender's lien, subject to its exceptions.
• Read every specific exception: an unreleased prior lien means you may not be in first position.
• Construction loans need ongoing title protection through endorsements, title updates and lien waivers.

Frequently asked questions

What is the difference between a title commitment and a title policy?

A title commitment is issued before closing and lists the requirements that must be met and the exceptions that won't be covered. The title policy is issued after closing, once the requirements are satisfied, and is the actual insurance.

Does a private lender need a lender's title policy?

It's standard practice for business-purpose real estate loans and nearly all capital partners and loan buyers expect it, because it insures the validity and priority of the lien they are relying on.

Does the title policy transfer if the loan is sold?

A lender's policy typically protects the insured lender and its successors and assigns, so it can protect a buyer of the loan. Confirm the commitment names the lender with successors and assigns language.

How Lender Capital fits

Every loan placed through Lender Capital includes the title commitment in its file, so capital partners can confirm first-lien position and review exceptions before they commit. One capital partner funds the whole loan, with the lender's policy protecting the lien.

See how it works for lenders or for capital partners.