Title insurance insures against risks associated with the transfer of real property. However, if you’ve ever had the pleasure of reading through a title insurance policy, you’ll know that not all risks to title are covered. Although Buyers don’t need to be experts in title insurance, you’re advised to understand that Special Exceptions to title insurance exist so your real estate dream doesn’t turn into a nightmare.
American Land Title Association
The story of Special Exceptions starts with the American Land Title Association (ALTA), the national trade association for the title insurance industry. Title insurers all across the country use the ALTA title insurance forms as the basis for their title insurers policies.
The following is an excerpt from the 2006 ALTA specimen policy:
“SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, (bold italics added) AND THE CONDITIONS, _(Blank)_______ TITLE INSURANCE COMPANY, a ______ corporation (the “Company”) insures,”
This excerpt is quoted to demonstrate and underscore the fact that title insurance companies do not insure against all risks to title. For purposes of this post, we’ll concentrate on the category of non-insured risks referred to above as “the exceptions from coverage contained in Schedule B,” know colloquially as “Special Exceptions.” Special Exceptions to title insurance are documents that memorialize circumstances of the property affecting your use and financial security.
Special Exceptions During the Real Estate Transaction
Special Exceptions represent a blind spot in many real estate transactions. Special Exceptions have two things going against them: 1) They tend to be invisible; and 2) The average Buyer isn’t apprised of them until the Inspection Period of the purchase and sale agreement, when visible circumstances of the property tend to crowd out invisible concerns buried in the back of the preliminary title report.
There’s simply too much going on during the average real estate transaction for the average buyer to pay attention to these public-record documents. They also can be complicated, contradictory, and sometimes inaccessible to the average reader. Special Exceptions are varied but may include:
- Boat slip use agreements
- Claims of lien
- CC&Rs
- Deed restrictions
- Easements
- Encroachments
- Judgments
- Plats (Records of Survey)
- Tax liens
- Road agreements
- Septic agreements
- Water agreements
In a perfect world, buyers would get a preliminary title report listing these public-record documents before putting an offer on a property. With so much on the line, it’s better to be safe than sorry!
Timely Contract Solutions
Buyer: Use TIER to understand the Special Exceptions associated with your purchase. Don’t overpay for your property. Quantify the value of the Special Exception risks and negotiate a fair price. If a TIER is obtained before entering the transaction, adjust your offer price to reflect the cost of remediation of Special Exceptions or move on to the next property.
Seller: Use TIER to understand the invisible legal risks of Special Exceptions documents associated with your property. Understand the real value of your property when adjusted for the cost of remediation of these exceptions. Use TIER as a marketing tool to substantiate your ask price and put qualified buyers at ease. Don’t be vulnerable to nard-nosed negotiators expert in whittling down your ask price.
This posting is not legal advice. Legal advice is based on specific facts. This information is necessarily general in nature.