Understanding Title Insurance in Real Estate
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.
What Affects Title?
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.
Risks Covered by Title Insurance
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 policy’s scope of coverage. They are Exclusions, Standard Exceptions, and Special Exceptions.
Exclusions include zoning restrictions and municipal regulations, such as building codes, environmental protection laws, wetlands laws, and enactments by governments that restrict the use of how a property can be developed. Other exclusions involve eminent domain issues, condemnation of property, liens, or title defects created by the person insured under the policy. Bankruptcy and property tax issues are also exempted to the extent they affect property title.
Standard exceptions are regionally based and are the same for most parcels within that region. An example includes water rights, which tend to be contested more often in the west than in the east.
Special exceptions are specific documents listed in Schedule B to the standard ALTA title policy. The list is different for each parcel, covering documents recorded at the County Recorder’s Office affecting that land, such as easements, agreements, restrictive covenants, shared well agreements, boundary line adjustments, and records of survey that may show encroachments on the property.
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.
Legal Due Diligence Solutions
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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 addresses the special exceptions to title insurance so you know exactly what you are purchasing.
Documents Not Recorded at the County Recorder’s Office. Use 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.