Title Insurance for Vacant Land: What It Covers and What It Costs

When you buy land, you are really buying a claim: the legal right to own that parcel, free of other people's claims to it. Title is the word for that right. Title insurance is how you protect it.

Land buyers skip it more often than home buyers do, usually because they are paying cash and nobody tells them to get it. That is backwards. Vacant land changes hands informally, through family transfers, tax sales, and handshake deals, and those are exactly the histories that produce title problems.

What title insurance is

Most insurance covers things that might happen in the future. Title insurance covers things that already happened, before you owned the land, that nobody has discovered yet.

The Consumer Financial Protection Bureau describes an owner's policy as insurance that "protects the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it." Its examples: "a previous owner's failure to pay taxes," or "contractors who say they were not paid for work done." The same applies to land.

Before issuing a policy, the title company searches the public records for the parcel. The search catches most problems, and the seller has to fix them before closing. The insurance is for what a search cannot catch, such as a forged signature on a deed from thirty years ago.

Owner's policy and lender's policy

Florida's Department of Financial Services lays out the types plainly: "An Owner's Policy protects the interest of the person purchasing the property," while "a Lender's Policy protects the interest of the lender."

The CFPB is direct about the gap: a lender's policy "only covers claims that affect the lender's loan." If a title problem surfaces and you hold only a lender's policy, the bank is made whole and you are not.

If you are financing and buying both policies, the CFPB notes the combined cost "is usually lower if you use the same provider for both."

What the owner's policy covers

Most policies in the United States use forms written by the American Land Title Association. The 2021 owner's policy lists its covered risks by number. The ones that matter most to a land buyer:

Someone else owns it. The first covered risk is "the Title being vested other than as stated" in the policy. If it turns out the seller did not actually own what they sold you, this is the coverage.

Defects, liens, and encumbrances. The policy covers "any defect in or lien or encumbrance on the Title," and spells out defects caused by:

• "forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation"
• "a document executed under a falsified, expired, or otherwise invalid power of attorney"
• "a document not properly filed, recorded, or indexed in the Public Records"
• "a defective judicial or administrative proceeding"

It also covers "the lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid."

Unmarketable title. A defect serious enough that a reasonable buyer could refuse to complete a purchase from you.

No legal access. Covered risk number four is five words long: "No right of access to and from the Land." If you buy a parcel and later learn there is no legal right to reach it, the policy responds. This covers the legal right, not whether the route is passable or convenient. Our guide to easements explains the difference.

What it does not cover

Exclusions. The policy form excludes several categories for everyone:

• Laws and government regulations, "including those relating to building and zoning." Title insurance will not pay because the land turns out to be zoned against your plans.
• The government's power of eminent domain.
• Problems "created, suffered, assumed, or agreed to" by you, and problems you knew about and did not disclose.

Exceptions. These are specific to your parcel, and they matter more. The title company lists every recorded item it found that affects the land: utility easements, access easements, deed restrictions, mineral reservations, and so on. Each listed item is carved out of coverage. They are not problems the company missed. They are known conditions you are agreeing to accept.

The survey exception. The policy covers an "encumbrance, violation, variation, adverse circumstance, boundary line overlap, or encroachment," but only if it "would have been disclosed by an accurate and complete land title survey." In practice, companies add a standard exception that removes this coverage unless you hand them a current survey. If you are getting the land surveyed anyway, give the survey to the title company and ask that the survey exception be deleted.

The title commitment is your best due diligence document

After you open a file, and before closing, the title company issues a title commitment, sometimes called a preliminary report. It costs you nothing extra, and it is the most useful document in the whole purchase. It shows:

• Who owns the land according to the records, and the exact legal description.
• Requirements that must be met before the company will insure, such as paying off a lien or getting a missing signature.
• Exceptions, the list of recorded easements, restrictions, and reservations described above.

Ask for a copy of every recorded document behind every exception, and read them. A one-line exception that says "easement recorded in Book 412, Page 88" could be a harmless power line or a road through your building site. You cannot tell until you read it.

Write your offer so that you have a set number of days to review the commitment and object. If the seller cannot clear an objection, you should be able to cancel and get your deposit back.

What it costs

You pay once, at closing. There are no renewals. Florida's regulator puts it this way: "You pay a one-time premium for your title policy," and "the policy remains in effect for as long as you or any heirs own the property."

How the price is set depends on the state.

States that set the rate. In Florida, title insurance rates are established by rule. For an original owner's policy the rate is "$5.75 per thousand for the first $100,000, then $5.00 per thousand up to $1 million." Every company charges the same premium.

States where companies set their own rates. Here the CFPB's advice applies: "You can usually shop for your title insurance provider separately from your mortgage. If you shop for title insurance, you could save money."

In either kind of state, expect separate charges for the title search, the closing or settlement service, and recording. Those fees do vary between companies, even where the premium does not. Ask for a written estimate of all of them.

Who pays for the owner's policy, buyer or seller, is a matter of local custom and negotiation. Florida's regulator points out one practical consequence: "The person paying the title insurance premium gets the first choice of closing/title agent."

Extra coverage worth asking about

Title companies can add endorsements to a policy, usually for a modest extra charge. The American Land Title Association publishes standard forms, and a few suit land purchases:

Availability varies by state and by company, and some are aimed at commercial deals. Ask your title agent which ones they offer for your purchase and what each costs.

Situations that need extra care

Owner financing. If the seller is financing the sale and you receive a deed at closing, buy the owner's policy then. If the deal is a contract for deed, where the seller keeps title until you finish paying, you need to know the title is clean before you start making payments. Order a title search at the start, not years later. Our guide to land loans explains the risks of those contracts.

Tax sale and quitclaim purchases. A quitclaim deed transfers whatever the seller has, which may be nothing. Land sold for unpaid taxes often carries leftover claims from the prior owner. Title companies frequently will not insure these titles until a court action, called a quiet title suit, settles ownership. Call a local title company before you bid.

Inherited and family land. Land passed down without probate can have many owners, some of whom do not know it. Every one of them has to sign. A title search is how you find out how many there are.

Sellers who say a title company is unnecessary. Some low-priced land is sold online with a quick deed and no closing agent. You are still free to hire a title company yourself to search the title and handle the closing. If a seller resists that, treat it as a warning.

The bottom line

Order a title commitment on any land you are serious about, read every exception behind it, and buy the owner's policy at closing. On a modestly priced parcel the premium is a few hundred dollars, paid once. Without it you could lose the land and the money you paid for it, with nobody to recover from.