Title Insurance

One question that always comes up during the home buying or selling process is understanding title insurance.

What it Covers

Title insurance protects you, as a home owner, and the lender against loss or damages that result from liens on the property, encumbrances, defects in the title of the home itself. During a real estate transaction, the sellers must convey to the buyer clear and marketable title of the property. This insurance protects from past claims or occurrences that may encroach on your clear, marketable title. Standard coverage will protect the new owners in the following circumstances:

  • someone else owns an interest in your title
  • a document is not properly signed
  • forgery, fraud, or duress
  • defective recording of any document
  • restrictive covenants
  • there is a lien on your title because there is a deed of trust, a judgement, tax or special assessment, or a charge by the homeowner's association
  • title is unmarketable

Types of Coverage

There are two policies for every transaction that is completed with a mortgage (there is only one when buying with cash). The first policy is to insure the new owners, an owners policy. In our area, this is typically paid for by the sellers. The amount the seller's pay for the owner's policy depends on the sales price of the home and which of the three coverage options below are requested.
The second policy is to cover the lender, a lenders policy. This policy covers the buyer's lender and is usually paid for by the buyer. The amount the buyer pays for the lender's policy depends on the amount of the loan. This policy ensures that the lender is in first lien position should the buyer default on the property.
In addition to these two policies, there are three levels of title insurance.

Standard with Exceptions

Standard title insurance with exceptions is the most basic of the title policies. It provides coverage with, as you guessed it, a few standard exceptions. While these exceptions may still be present in the higher levels of coverage, they are always present with this level of coverage.
What it does not cover you for is:

  • rights or claims of parties in possession not shown on records
  • encroachments, overlaps, boundary line disputes, and any matters which would be disclosed by an accurate survey and inspection of the premises
  • mechanics' or materialmens' lien or other statutory liens for labor or material not shown on records
  • restrictions and easements and claims of easements not shown on records
  • taxes or special assessments which are not shown as existing liens by the public record
  • rights of dower, homestead, or other marital rights of the spouse, if any, of any individual insured
  • existing water, mineral, oil, and exploitation rights which are not on record

Standard without Exceptions

Standard without exceptions is the exact same price as the standard with exceptions except a survey may be required by the title company. While not always required, a survey is typically necessary on commercial properties, on new construction, when the legal description uses metes and bounds, or if it is a lakefront home. If the home is on a subdivision plat or is a site condo a survey is usually not required. When requesting this policy level, the seller's will need to provide additional information at closing as well. They will need:

  1. To submit an affidavit establishing the following facts:
    1. That they are in possession of the property and have no knowledge of any other parties in possession or claiming rights of possession
    2. That they have no knowledge of the granting of any unrecorded water, mineral and/or oil rights, unrecorded easements or claims of easements, boundary line disputes, or claims of such grants or rights relative hereto
    3. Their martial status throughout their term of ownership
  2. Submit a proper sworn statement and waiver showing payment or release of lien rights covering improvements made on the land in the last 90 day or satisfactory proof that no improvements have been made within the last 90 days
  3. Submit satisfactory survey by an approved surveyor certified to the Title Company, showing no encroachments or adverse rights upon the subject property or any variation between the legal property description and the survey description.

Expanded

Expanded coverage provides the highest level of coverage for the buyers and is more expensive than the other option. However, expanded coverage NEVER requires a survey and the difference in price from standard to expanded is usually less than the cost of having a survey done. In addition to the coverage scenarios listed above, expanded coverage will cover the buyer in the following circumstances:

  • mechanic's lien
  • forced removal of a structure because it extends on to other land or on to an easement, violates a restriction noted in the title work, or violates an existing zoning law
  • inability to use land for a single-family-residence because the use violates a restriction in noted in the title work or a zoning ordinance
  • pays rent for substitute land or facilities
  • unrecorded lien by a homeowner's association
  • unrecorded easements
  • rights under unrecorded leases
  • plain language
  • building permit violations
  • compliance with Subdivision Map Act
  • restrictive covenants violations
  • post policy encroachments
  • post policy damage from mineral or water extractions
  • post policy living trust coverage
  • enhanced access - vehicular and pedestrian
  • map not consistent with legal description
  • post policy automatic increase in value up to 150%
  • post policy adverse action possession
  • post policy cloud on title
  • post policy prescriptive easement
  • covenant violation resulting in reversion
  • boundary wall and fence encroachments
  • enhanced marketability
  • violations of building setbacks
  • discriminatory covenants
  • insurance coverage forever
  • post policy fraud