Title Insurance 101: A Summary Guide
By: William Robinson, President of Attorneys Title Agency
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
To better understand this definition, it might help to explain what title insurance is not.
Title Insurance Protects Against Loss/It Does Not Promise To Fix Defects
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
insurance does not assure a buyer that the property to be sold is fit
for any particular purpose. It may be swampland in Florida. Title
insurance simply confirms ownership.
Title Insurance Helps To Avoid Risk-Not To Assume It
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 policyholders.
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.
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.
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
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.
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.
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
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 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.
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.
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.
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?
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.
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.
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.