Memphis, Tennessee – In any real estate transaction there will be a "gap" between the last search before closing and the recording of documents. Depending on circumstances this period may be several days, or weeks. During this period a lender is defenseless against competing interests which may be first to record. The loan closing took place on Friday, October 22. After payoffs and expenses the borrowers received net loan proceeds of $7,086. The deed of trust was recorded on Monday, November 1. First American's policy insuring the lender for $100,880 was effective October 22, the date of closing. The loan became delinquent. The borrowers filed bankruptcy and abandoned the property.

Winners Take All: In this race to beat out a tax lien the borrowers won, but then so did the IRS.

When the lender began foreclosure it learned for the first time that the IRS had recorded a tax lien against these borrowers, also on October 22, which attached to the property ahead of the insured deed of trust. No search of public records would have found this lien on the day of closing.

A total of $53,814 was claimed by the IRS, impairing the lender's security.

First American undertook negotiations with the feds. Finally recognizing that this was a refinance of an existing mortgage, to which its tax lien would have been junior, the IRS accepted $37,500 to release its lien.

Attorney opinion letters and other forms of title assurance address only matters disclosed by public records on the date last searched, which may be weeks before a closing and subsequent recording.

Title insurance protects against undisclosed matters as of the policy date.