Title Insurance

What is Title Insurance?
Title insurance is an agreement which obligates a title insurer to indemnify a property owner against loss or damage arising out of defects in title to real property.  Defects in title include liens or encumbrances on property or other matters affecting title to property or the right of a property owner to use or enjoy his or her property.  In a lawsuit challenging a person’s ownership interest in property, the title insurer will provide a legal defense to the policy holder (i.e., property owner) and pay any claims or judgments up to the face amount of the policy.

Why Title Insurance is necessary?
Many buyers ask why title insurance is necessary. Title insurance protects a property owner (i.e., buyer) from hidden defects in title that are not uncovered (and in many cases could not be uncovered) during the course of a normal title examination.  Examples of such hidden defects include forged signatures on deeds, missing heirs, wills that have not been properly probated, and errors in the clerk’s office in recording deeds or releasing liens.  Although claims involving title defects do not occur on a daily basis, the potential loss, in the event a claim does arise, can be catastrophic to a property owner who does not have title insurance.

How Title Insurance is obtained – lender’s policy and owner’s policy
To obtain title insurance, the buyer pays a one-time premium at the time of closing.  Title insurance comes in two forms – a lender’s policy and an owner’s policy.  The lender’s policy protects the lender’s interest in the property up to the face amount of the loan.  It covers errors made in connection with the title search conducted for the specific transaction and any prior defects in title.  The lender’s policy is purchased by the buyer and is usually required as a condition of the loan.  However, the lender’s policy does not protect the buyer from any title claims.  The policy remains in effect for the period of the loan, so if the property is sold or refinanced, a new lender’s policy likely will be required.

The owner’s policy protects the buyer’s interest in the property from any claims with regard to title up the amount of the purchase price of the property. Like the lender’s policy, it protects against errors made in connection with the title search conducted for the specific transaction and any prior defects in title. The owner’s policy is optional and is purchased by the buyer. Unlike the lender’s policy, however, the policy remains in effect indefinitely (even if the property is refinanced or sold).

Advantage Policy versus the Standard Policy
The owner’s policy comes in two forms – a standard policy and an advantage (or expanded) policy.  The standard policy covers property owners for defects and liens in the history of the property through the date and time that the deed is recorded in the public records.  The advantage policy provides coverage for seventeen (17) additional risks, including some which may occur after the deed is recorded.

Below is a coverage comparison of the standard and advantage policies.

COVERAGE COMPARISON:

BOTH POLICIES INCLUDE:
Standard Policy
Advantage Policy
Mechanic’s Lien Coverage
Yes
Yes
Third Party claims an interest in the title
Yes
Yes
Improperly executed documents
Yes
Yes
Pre-Policy forgery, fraud or duress
Yes
Yes
Non-recorded restrictive covenants
Yes
Yes
Defective recording of documents
Yes
Yes
Prior recorded liens not disclosed in the policy
Yes
Yes
Unmarketability of the title
Yes
Yes
Policy insurers anyone who inherits the property from the owner
Yes
Yes
ADDITIONAL COVERAGES IN ADVANTAGE POLICY:
Policy insures the Trustee of the property owner’s estate-planning trust
No
Yes
Policy insures the Trustee of the property owner’s estate-planning trust
No
Yes
Policy insures the beneficiaries of the property owner’s trust upon the owner’s death
No
Yes
Automatic increase in coverage up to 150% (not based on inflation)
No
Yes
Post Policy Forgery
No
Yes
Post Policy encroachment onto insured land
No
Yes
Legal right to ACTUAL vehicular and pedestrian access
No
Yes
Up to $25,000 coverage for certain losses due to Building Permit violations (subject to a deductible*)
No
Yes
Up to $25,000 coverage for certain losses due to zoning law violations (subject to a deductible*)
No
Yes
Up to $10,000 coverage for certain losses due to existing violation of subdivision law (subject to a deductible**)
No
Yes
Post policy structural damage from third party easement for mineral extraction
No
Yes
Violation of restrictive covenants identified in the Policy:
-Resulting in loss from correction or removal
?Resulting in loss of title
-Resulting in loss of use where single family dwelling prohibited
No
Yes
Forced removal of existing structures that:
-Encroach onto an easement identified in the Policy
-Violate a building restriction line identified in the Policy
-Encroach onto neighbor’s land (subject to a deductible** and maximum*** if boundary wall or fence)

*        deductible of 1% of Policy Amount or $5,000.00 (whichever is less)
**      deductible of 1% of Policy Amount or $2,500.00 (whichever is less
***    maximum of $5,000.00

Both policies contain conditions and stipulations.  The information provided above is not intended to be legal advice.  An attorney should be consulted to answer any questions regarding a property owner’s legal rights under the various policies.

Please contact a representative of Monument Title to provide an estimate of the cost of title insurance.