• Title Insurance 101: A Summary Guide
  • April 1, 2011
  • Law Firm: Keith Sirlin Associates P.C. - Waterford Office
  • Every summary of title insurance

    begins with an attempt to define it. This

    is difficult because title insurance is an

    insurance product unlike almost any

    other. It is an agreement to pay the insured’s

    financial loss if his or her ownership

    interest in land is different than as

    stated in the policy. In other words, the

    policy will define what the insured owns

    and then protect the insured against

    loss if that declaration is not correct.

    To better understand this definition,

    it might help to explain

    what title insurance is not.

    Title insurance protects against loss .

    Title Insurance Protects Against Loss/It Does Not Promise To Fix Defects

    If a purchaser buys a house and

    later discovers that the local telephone

    company has an undisclosed easement

    across the middle of the property’s back

    yard, the title insurer must pay for the

    reduction in the property’s value because

    of the easement. The insurer does not

    have to pay to eliminate the easement.

    Title insurance only insures ownership

    Title Insurance Only Insures Ownership

    Title insurance does not assure a

    buyer that the property to be sold is

    fit for any particular purpose. It may

    be swamp land in Florida. Title insurance

    simply confirms ownership.

    Title insurance helps to avoi d

    Title Insurance Helps To Avoid Risk-Not To Assume It

    The key to a title insurance commitment

    or policy is that it discloses

    risk. Most insurance policies simply

    assume risk. If a house burns down,

    the fire insurance policy should pay

    for the cost to rebuild it. Its insurance

    premiums are based upon determining

    the cost of the risk and spreading

    that cost among all policy holders.

    Title insurance is different. It attempts

    to discover all of the limitations

    and defects in the ownership

    of property and to disclose them so

    that they can be eliminated prior to

    closing. Its insurance premiums are

    based upon the cost of researching the

    property’s title. This product makes

    the assumption that people want assurance

    that they own their homes,

    not simply the opportunity to collect a

    check if they discover that they do not.

    By way of example, assume a property

    is subject to an undischarged mortgage.

    A title insurance policy will not automatically

    insure against that mortgage.

    Instead, it will disclose the mortgage

    and, thus, give the buyer an opportunity

     

     

    to make sure the mortgage is paid and

    discharged before the property is sold.

    For this reason, it cannot be stressed

    enough that A BUYER MUST READ

    HIS OR HER TITLE INSURANCE

    COMMITMENT BEFORE

    CLOSING. This leads very nicely into

    the topic of Title Insurance Forms.


    Title Insurance Forms

    Many title insurance summaries

    devote considerable space to discussing

    different policy forms. For real

     

     

    ever, the policy is rarely an issue. The

    document that discloses title defects

    and must, therefore, be reviewed is a

    Commitment For Title Insurance.

    A Commitment is just that: it commits

    to issue a policy provided certain

    requirements are met. These typically

    include that the buyer or lender acquires

    a deed or mortgage, has it recorded and

    pays the insurance premium. Other

    requirements may be listed, but the

    policy will still be issued, even if

    they are not fulfilled. Instead,

    additional exceptions from

    coverage may be added.

    In general, a title insurance

    commitment is

    divided into four parts:

    1) the cover or jacket,

    which describes its terms and

    conditions; 2) Schedule A, which

    is a declaration page describing

    who and what is insured; 3)

    Schedule B-I, which lists the

    requirements for coverage; and

    4) Schedule B-II, which

    lists the exceptions

    from coverage.

    The Commitment Jacket


    This section is standardized

    for each insurance

    company. It merely

    confirms that the

    company is committing

    to provide coverage.

    In some cases, that jacket may

    also list standard requirements and

    exceptions from coverage, which

    will be described in later sections.


    Schedule A

    This schedule lists the type

    of policy or policies to be issued;

    the current owner of the land; and,

    the property’s official or “legal”

    description. Most importantly,

    however, Schedule A lists the commitment’s

    “Effective Date.” This is the

    time through which the property’s title

    has been examined. Any defects that are

    recorded after the Effective Date are not

    automatically insured against. Unlike

    other forms of insurance, title insurance

    protects against matters that have

    already happened. It does not insure

    against what may happen in the future.


    Schedule B-I

    As stated, this schedule lists the

    requirements that must be met before

    a policy will be issued. Many of these

    items are standard. For example, the

    commitment will require that a deed

    or mortgage be delivered and recorded;

    that the premium be paid; and that the

    parties to the closing be disclosed to the

    company. Schedule B-I will also usually

    disclose taxes that affect the property

    and must be paid. In addition, it will

    often list mortgages that must be

    paid and discharged for the

    buyer or lender to obtain

    “clear title.” Special attention

    must be paid to

    all of these items because

    if these requirements are

    not met, additional exceptions

    will be added to

    the policy when it is issued.


    Schedule B-II

    This is the schedule that lists

    all of the limitations to title,

    which will appear as “exceptions”

    to the policy coverage.

    This list must be

    reviewed very carefully.

    Generally, exceptions

    fall into two

    categories: standard

    and special. Standard exceptions

    appear on all commitments.

    While they differ

    somewhat from company to

    company, they typically include:

    1) rights of parties in possession,

    such as tenants, if any;

    2) unrecorded easements; 3)

    encroachments, overlaps

    or other matters that an

    accurate survey would

    disclose; and 4) unrecorded

    construction liens. All of

    these items can affect a

    property’s title even though

    no evidence of them has been recorded

    in the public land records. Typically a

    buyer can request “extended coverage.”

    In that case, these exceptions will be

    deleted if a satisfactory affidavit and

    survey or mortgage report are supplied

    to the company. Based upon what is

    disclosed, however, a title company

    may still raise a special exception to

    cover these items. For instance, if an

    affidavit discloses that a tenant occupies

    the property to be sold, the standard

    exception for parties in possession may

    be deleted, but a special exception for

    that tenant’s rights may be added.

    Special exceptions, therefore, are

    those items that are unique to the particular

    property being sold. They may

    cover items one would expect, such as

    building and use restrictions or utility

    easements. They might also disclose

    problems, however, such as mortgages

    or tax liens, which should have been

    paid and discharged. This list needs to

    be thoroughly reviewed by a prospective

    buyer and he or she must be comfortable

    with all of the items included.


    Can I Rely On My Title Insurance?

    Yes, but be aware of its limitations.

    Title insurance coverage is regulated

    by state insurance agencies and it has

    been dependably sound. With all of

    the problems among financial service

    companies, title insurance companies

    have stood out as stable and solvent.

    Their policies’ coverage, however, may

    not always meet a buyer’s needs.

    In the introduction, a situation in

    which a utility easement ran through

    the middle of a property’s back yard was

    outlined. Title insurance would only pay

    for the reduction in that property’s value

    because that easement exists. That reduction

    in value could be nominal. Title

    insurance will not pay to remove the

    easement. Suppose, however, that a buyer

    specifically purchased that home with

    the dream of installing an in-ground

    pool. That buyer’s title insurance policy

    would not make him or her whole.

    Property information is only as good

    as the company providing it. Not all

    title insurance is the same. As with most

    services, it pays to know the reputation

    and ability of the company providing

    them. A buyer’s best protection is

    to do business with a title insurance

    provider that he or she can trust.