Title Insurance: Safeguarding Your Real Estate Investment
Title insurance insures against risks associated with the transfer of real property. Imagine buying a home only to learn that you don’t own the home. This occurrence can happen and, although unlikely, does happen. Title insurance covers specific risks to title, making home values more predictable and stable.
American Land Title Association Standards
The standard title insurance form used in whole or part by industry participants is the 2006 Owner’s Policy of Title Insurance produced by the American Land Title Association. For the rest of this article, this form will be referenced for edification and convenience.
The specific risks covered vary depending on the title company, location of the parcel, and type (or level) of coverage. Title policies will never cover every conceivable risk. However, some of the common risks covered include:
- Incorrect legal descriptions of property;
- Forgery or impersonation on recorded documents;
- Lack of competency, capacity, or legal authority of a party;
- Improperly recorded deeds; and
- Lack of a right of access.
Different levels of coverage are available, Standard versus Extended for example, with less comprehensive coverage costing less and more comprehensive coverage costing more.
Title Insurance Exclusions
Title insurance exclusions are risks lying outside the scope of insurance coverage unrelated to the specificities of the parcel. Exclusions are called out in a title insurance policy as a matter of clarification. Exclusions are not strictly speaking matters of title, but matters related to the use of the parcel.
Broadly, Exclusions fall into two categories:
- Government regulations affecting the use of the parcel, including but not limited to zoning, building code, environmental, subdivision, and existing improvements;
- “Rights” by eminent domain.
Title Insurance Exceptions
Title insurance exceptions are risks that lie outside the scope of insurance coverage, risks related to the parcel. Exceptions are found in “Schedule B” of the 2006 ALTA Owner’s Policy following “Schedule A.” Exceptions are of two types: 1) Standard and 2) Special.
Standard Exceptions are defined as matters unrelated to matters of title. Standard Exceptions are not strictly speaking matters of title, but matters related to the use of the parcel.
Broadly, Standard Exceptions may include:
- Parties in possession
- Accurate survey or inspection
- Adverse possession or prescriptive easements
- Easements not shown by public record
- Construction liens
The difference between Standard and Extended title insurance coverage is most often the difference between a policy that does not cover Standard Exceptions and that which does cover them.
Special Exceptions are found in Schedule B of the 2006 ALTA Owner’s Policy, most times in Section II. The Special Exceptions section lists public-record documents representing uninsured risks to title.
What is a Title Insurance Endorsement?
The title insurance endorsement alters the coverage provided by the title policy. Endorsements supplement the primary title insurance policy, providing coverage to the insured for specific issues not addressed in the primary policy.
The title insurer may issue an endorsement if there are special circumstances in the underlying real estate deal that should be accounted for. The list of possible endorsements goes beyond the scope of this article but some more common endorsements include:
- Endorsements for condominiums
- Planned unit developments
- Zoning endorsements
- Access endorsements
The American Land Title Association, located in Washington, DC, is the industry trade association for the title industry, providing authoritative information and standardized forms used in whole or part by most industry participants.
Timely Contract Solutions
Buyers. Use TIER® (Title Insurance Exceptions Review®) to get a legal opinion of Special Exceptions documents recorded at the County Recorder’s Office for land located outside of platted subdivisions at a minimum. Negotiate purchase price during the transaction to account for the cost of title remediation.
Sellers. TIER® (Title Insurance Exceptions Review®) delivers a legal opinion of Special Exceptions documents recorded at the County Recorder’s Office. Know what defects to title exist and how to fix them before listing to get the most for your property. Offer the clean legal opinion to serious buyers to substantiate your offer price.
This posting is not legal advice. Legal advice is based on specific facts. This information is necessarily general in nature.