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Title Insurance Basics

by | Jul 16, 2021 | TIER, TIER Plus

To understand what title insurance is, it helps to understand what title is. Broadly defined, title includes the right to possess, to build, to exclude others, and the right to sell.

Title to land can be affected in any number of ways. The County Recorder’s Office is where many documents restricting the use of the land and affecting title are stored. Documents like deeds, easement agreements, homeowners’ association covenants, shared well agreements, are examples of documents restricting the use of a property. However, the County Recorder’s Office is not the only place documents affecting your property may be located. Many local, State, Federal, and Tribal agencies house documents that could potentially affect your use of your property.

Title insurance can cover some risks for a Buyer, but it doesn’t protect against all risks. The exclusions and exceptions to title insurance can be more extensive than people think. The standard American Land Title Association (ALTA) title insurance policy has three categories defining risks to title that lie outside the polilcy’s scope of coverage. They are Exclusions, Standard Exceptions, and Special Exceptions.

Exclusions. Exclusions include zoning restrictions and municipal regulations, Examples here are building codes, environmental protection laws, wetlands laws, and enactments by governments that restrict the use of how a property can be developed. Next, eminent domain issues, condemnation of property, and liens or title defects that have been created by the person who is insured under the policy. Also, bankruptcy and property tax issues are exempted, to the extent they affect property title.

Standard Exceptions. Standard exceptions are regionally based and are the same for most parcels within that region. Special exceptions are different depending on where the property is located. As an example, in the western states, one item you typically find excepted from title coverage are water rights. Water rights and well issues tend to be contested more often in the west than in east, for example.

Special Exceptions. Special exceptions are specific documents listed in Schedule B to the standard ALTA title policy.  The list is different for each parcel. Every parcel has a set of documents filed at the County Recorder’s Office affecting that land. Examples of documents located at the County Recorder’s Office are easements, agreements, restrictive covenants, shared well agreements, boundary line adjustments, and records of survey that may show encroachments on the property. This is not an exhaustive list. The list can go on and on.

The bottom line is, if someone buys a property with an excluded or excepted risk, there is no insurance coverage. Best to know about these risks before you buy.

Timely Contract Legal Due Diligence Solutions

Documents Recorded at the County Recorder’s Office. Use TIER for a legal opinion of the documents located at the County Recorder’s Office that will limit your use of the property. TIER address the special exceptions to title insurance so you know exactly what you are purchasing,

Documents Not Recorded at the County Recorder’s Office. User TIER Plus for a legal opinion of documents not recorded at the County Recorder’s Office but that can limit your use of the property. Examples of these types of risks are wetland restrictions, grazing and timber restrictions, and zoning regulations.

Before buying, avoid heartache and heartburn by doing the legal due diligence so you know the property is everything you think it is. If you don’t do the work and something turns up that you didn’t expect, more likely than not title insurance is not going to pay.

The information in this Post is not legal advice. Legal advice is based on specific facts. This information is necessarily general in nature.

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