Title insurance is generally a two-step procedure, and the period of time between those two steps is the gap period. A title insurance gap policy provides insurance coverage to the policyholder for title defects that may arise during the gap period.
The first step in obtaining title insurance is for the title agency to provide the purchaser or lender with a preliminary report and commitment for title insurance. The purpose of this document is to identify the property to be insured, the owner of the property and any title defects that may not be covered by the insurance. Any items that are not covered by the insurance are listed as exceptions to coverage. Common exceptions include liens and easements of public record.
There is always a waiting period, called the gap period, after the title agency provides the commitment. During this gap period, it is possible that additional interests in the subject property might arise and be recorded against the property. Those interests are obviously not included in the title commitment because they arise after provision of that commitment. Therefore, to avoid potential legal liability from any title defects that arise during the gap period, most title commitments specifically provide an exception for any interests that arise during the gap period. In essence, then, the gap period is not included for coverage under the title commitment.
Date Down Search
Most title agencies will perform a date down search immediately before closing on the purchase or loan transaction. This means the title agency will review the public records for the property one more time after the gap period. This allows the lender to remove the gap exception from the title insurance policy actually issued to the buyer or lender. Most standard title insurance policies provide coverage for defects that may arise during the gap period. A separate gap insurance policy is generally not required.
Independent Gap Policy
Some title agencies, though, do not provide coverage in a standard policy for defects arising in the gap period. This means the buyer or lender would bear the risk of loss for defects arising during the gap period. To reduce that risk, most title agencies will issue an independent title insurance gap policy that covers defects that arise during the gap period. This independent gap policy ensures that the buyer or lender is fully covered by title insurance.