Claim

A claim is a legal assertion of a right or demand against property, an estate, or another party. In mortgage note investing, claims arise in several contexts — as liens recorded against real property, as demands filed with title or hazard insurance companies, and as legal actions asserting rights to property or proceeds. Identifying and evaluating claims is a core part of due diligence because unresolved claims can cloud title, reduce collateral value, or prevent an investor from enforcing their mortgage.

Types of Claims in Note Investing

Claims that affect mortgage note investments fall into three broad categories:

Property Lien Claims

A lien claim is a recorded encumbrance asserting that a creditor has a right to a portion of the property's value. These appear on title reports and O&E reports during due diligence:

Each of these claims appears in the county records and must be identified before purchasing a loan. The presence and size of competing claims directly affects pricing — an investor must account for claims that will either need to be satisfied or will survive a resolution strategy.

Title Insurance Claims

A lender's title policy protects the note holder against losses caused by defects in the property's title that existed at the time the policy was issued. If a defect emerges — such as a previously undisclosed lien, a forged deed in the chain of title, or an error in the legal description — the note holder can file a claim with the title insurance company.

Common title insurance claim scenarios for note investors include:

• Broken chain of title — a gap in the recorded ownership history that was missed when the policy was issued
• Undisclosed liens — liens that existed but were not found during the original title search
• Forgery or fraud — a deed or mortgage in the chain that was executed fraudulently
• Errors in public records — recording mistakes at the county recorder's office that create title defects

Title insurance claims can take months or years to resolve. During that period, the defect may prevent the investor from foreclosing or selling the property. When purchasing a loan, investors should confirm whether a lender's title policy exists in the collateral file and whether it is still in force.

Hazard and Property Insurance Claims

A hazard insurance claim is filed when the collateral property suffers physical damage from fire, storm, vandalism, or another covered event. The insurance proceeds may be payable jointly to the property owner and the lien holder (the note investor or their servicer). As the note holder, the investor has a vested interest in ensuring insurance proceeds are used to repair the property — maintaining collateral value — rather than being diverted elsewhere.

Identifying Claims During Due Diligence

The investor's due diligence process is designed to surface all existing claims before a purchase decision:

• Title search or O&E report — reveals recorded liens, judgments, and encumbrances
• County records research — free portal searches for delinquent taxes, recorded liens, and pending litigation
• Bankruptcy search — a bankruptcy filing is itself a claim that imposes an automatic stay on all collection and foreclosure activity
• Collateral file review — confirms whether a lender's title policy exists and identifies any prior claims history

Claims discovered during due diligence inform the investor's pricing and strategy. A property with a small, manageable tax delinquency may still be a good investment if the cost is factored into the bid. A property with a large mechanic's lien or an active title insurance dispute may be a deal-breaker — or require a substantially deeper discount to justify the risk.