An insurance policy–protecting against loss should the condition of title to land be other than as insured.
When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights you bargain for.
Not at all. At the mere hint of a claim adverse to your title, you should contact your title insurer or the agent who issued your policy. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate, or settle an adverse claim.
The cost varies, depending mainly on the value of your property. The important thing to remember is that you only pay once., then the coverage continues in effect for so long as you have an interest in the covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.
The lender’s policy covers only the amount of its loan, which is usually not the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender’s ability to foreclose and recover its principal and interest. And, in the event of a calim there is no provision for payment of legal expenses for an uninsured party. When a loan policy is being issued, the small additional expense of an owner’s policy is a bargain.
There are two types of title Insurance: owner’s title insurance, called an Owner’s Policy and lender’s title insurance, called a Loan Policy. Most lenders require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases as you pay down your loan and eventually disappears as the loan is paid off.
An Owner’s Policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you have an interest in the property. Only an Owner’s Policy protects the buyer should a covered title problem arise. Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Forgery
- Undisclosed heirs
An Owner’s Policy provides assurance that your title insurance company will stand behind you–monetarily and with legal defense if needed–if a covered title problem arises after you buy your home.
Construction of a new home has the potential exposure to unique title pitfalls that may impact the lender and owner.
You may think you are the first property owner when you are constructing or buying a newly built home. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property you are purchasing.
In addition, a builder may have failed to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property.
Since your lender wants to be sure the property has a clear title, they will require that a Loan Policy of Title Insurance be purchased. But a Loan Policy only protects the lender. By purchasing an Owner’s Policy of Title Insurance, you will be protected from covered threats to your title and ownership that went undiscovered at the time of closing.
Best of all, your Owner’s Policy provides this coverage for as long as you own your home!
Sure. First understand there are basically three different levels of coverage: Standard coverage, Extended coverage, and our most comprehensive “EAGLE Policy” coverage.
Standard coverage handles such risks as:
- Forgery and impersonation;
- Lack of competency, capacity or legal authority of a part;
- Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner);
- Undisclosed (but recorded) prior mortgage or lien;
- Undisclosed (but recorded) easement or use restriction;
- Erroneous or inadequate legal descriptions;
- Lack of a right of access; and
- Deed not properly recorded.
An extended coverage policy may be requested to protect against such additional defects as:
- Off-record matters, such as claims for adverse possession or prescriptive easement;
- Deed to land with buildings encroaching on land of another;
- Incorrect survey;
- Silent (off-record) liens (such as a mechanics’ or estate tax liens); and
- Preexisting violations of subdivision laws, zoning ordinances or CC&R’s.
Subject to availability in your locale, First American’s EAGLE Policy covers all of the risks listed above, plus:
- Post-policy forgery;
- Force removal of improvements due to lack of building permit (subject to deductible);
- Post-policy construction of improvements by a neighbor onto insured land; and
- Location and dimensions of insured land (survey not required).
As with any insurance contract, the insuring provisions express the coverage afforded by the title insurance policy and there are exceptions, exclusions, and conditions to coverage that limit or narrow the coverage afforded by the policy. Also, some coverage may not be available in a particular area or transaction due to legal, regulatory or underwriting considerations. Please contact a First American representative for further information.
