{"id":7392,"date":"2026-04-17T08:38:23","date_gmt":"2026-04-17T12:38:23","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=7392"},"modified":"2026-04-17T08:38:24","modified_gmt":"2026-04-17T12:38:24","slug":"getting-title-insurance-dont-assume-a-propertys-physical-conditions-are-covered","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/getting-title-insurance-dont-assume-a-propertys-physical-conditions-are-covered\/","title":{"rendered":"Getting Title Insurance? Don\u2019t Assume a Property\u2019s Physical Conditions Are Covered"},"content":{"rendered":"\n
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A few months back, an interesting case came out on Georgia title insurance law. It clarified the allowable claims against title insurance<\/a>. People buy title insurance on closing day to guard themselves against unknown title problems affecting a property\u2019s market value.  <\/p>\n\n\n\n

That is, a title policy exists to protect a deed holder\u2019s marketability of title<\/em>. At its essence, it protects the policy holder in case the legal rights of homeownership are in question.<\/p>\n\n\n\n

Title insurance does not guard the deed holder from physical defects on the property. Those, said the court, relate to economic marketability<\/em>.<\/p>\n\n\n\n

What are physical defects? In this case, the issue was the inability of a deed holder to get a construction permit.<\/p>\n\n\n\n

What Happened in the Georgia Court Case?<\/h2>\n\n\n\n

In early 2024, Reginald Luster bought a home in Fulton County, Georgia.<\/p>\n\n\n\n

At closing, Luster opted to buy an owner\u2019s title insurance policy from the Investors Title Insurance Company to protect his ownership interest against any unknown title issues that could arise. Luster\u2019s policy said it covered \u201closs or damage\u2026sustained or incurred\u201d by an unmarketable title.<\/p>\n\n\n\n

Now, what would \u201cunmarketable title\u201d actually mean? The language of the policy laid it out. It defined unmarketable title as involving some issue that would allow a prospective buyer or renter to walk away if<\/em> the parties\u2019 contract specifies that the title must be marketable.<\/p>\n\n\n\n

About a month after closing, the real-life meaning of this language would be put to the test.<\/p>\n\n\n\n

Luster wanted to install a septic tank. He applied for a residential building permit to allow the work to happen. The local government refused to issue the permit. Why? Because Luster\u2019s subdivision had access to nearby sewer lines. The subdivision\u2019s developer neglected to connect them to the home. Luster didn\u2019t know this when he bought the property. And now, he needed a septic tank but couldn\u2019t get one.<\/p>\n\n\n\n

Luster filed a claim with the title insurer. The insurer denied the claim. Luster took the company to court.<\/p>\n\n\n\n

The case was decided in the U.S. District Court for the Northern District of Georgia. The issue before the court was whether a property\u2019s physical defects affect \u201cmarketability of title\u201d and are therefore covered by title insurance under Georgia law.<\/p>\n\n\n\n

Luster argued that he had indeed purchased an unmarketable title, as the home had a defect serious enough to make any potential buyer who knew about it walk away. He himself would have walked away. If only he\u2019d been aware that a residential building permit would be denied based on the condition of the property, he would have told the seller to release him from the purchase contract.<\/p>\n\n\n\n

A Win for the Title Insurers<\/h2>\n\n\n\n
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The court rejected Luster\u2019s position. The judge said a deed holder couldn\u2019t expect the policy to cover just any defect that might turn off a potential buyer. A problem with the physical state of the property, no matter how serious, is not automatically a title <\/em>defect.<\/p>\n\n\n\n

The court looked at similar cases that have been decided in Georgia. The Georgia courts have treated title and property ownership differently from defects in the physical condition of a property. That is, physical defects that do not affect the ability to transfer legal ownership<\/em> don’t make a title unmarketable. The lack of sewer access and the lack of permit availability would not stop the deed holder from transferring ownership to some other party. To help this make sense, recall that a title policy essentially protects the policy holder in case the legal rights of homeownership<\/em> are in question.<\/p>\n\n\n\n

The insurer prevailed. Luster received no aid from the court. The court decided that Luster had not suffered a loss that the insurance policy covered.  So, the court simply  granted the title company\u2019s motion to dismiss Luster\u2019s claim against the insurance policy.<\/p>\n\n\n\n

A Recent Case in Pennsylvania Produced a Similar Outcome<\/h2>\n\n\n\n

In another recent decision, the Superior Court of Pennsylvania heard from a deed holder who bought a property in the Philadelphia suburbs in the 1970s\u2014along with a title policy. Nearly 25 years passed. Then, the deed holder came across an old septic tank in the front yard. Suddenly, it was time for a costly remediation job.<\/p>\n\n\n\n

It turned out that the documentation for the septic tank was on file with the township. Presumably, the title company ought to have noticed it before closing.<\/p>\n\n\n\n

The deed holder filed a title insurance claim. Why, he asked, hadn\u2019t the insurer notified the home buyer of the issue? He pointed to the policy language that said any \u201cdefect\u201d on the title would be covered.<\/p>\n\n\n\n

As you might guess by now, the insurer rejected the claim.<\/p>\n\n\n\n

Now, the deed holder would have to disclose the problem to a potential buyer. That would take the value of the property down a notch. The homeowner sued.<\/p>\n\n\n\n

On appeal, the Superior Court agreed that the property value was diminished. But the title wasn\u2019t.<\/p>\n\n\n\n

A Number of States Have Similarly Sided With Insurers<\/h2>\n\n\n\n

It was a novel question in Pennsylvania: whether a physical defect on the property was covered by title insurance. The court looked to other states\u2019 cases to formulate its own decision.<\/p>\n\n\n\n