by Tim Kenny

When purchasing real estate, buyers usually obtain title insurance. Buyers often believe that title insurance will protect against any loss due to title defects. Following the Closing, a buyer might assume that if the taxes and the mortgage are paid timely, the title to the real estate is secure and the buyer is free to use and enjoy the property. Should a title issue arise, the buyer may also assume the title company will defend the buyer’s title and cover any related loss. Those assumptions may not be correct.

The standard owner’s title policy covers claims that:

(a) the property belonged to someone other than the seller, or there exists some defect or encumbrance in the title that was not previously identified as an exception in policy schedules 

(b) the buyer’s ability to sell or convey the buyer’s insured title later is challenged, or 

(c) the buyer has no access to the property from a public street or highway.

Title policy coverage continues as long as the buyer has an interest in the property. If the buyer dies, coverage continues for the benefit of the buyer’s heirs. Warranties of title made by the buyer in the deed to the next buyer are covered only as to matters for which the buyer was insured.

It is important to keep in mind that not all potential title problems are covered by the standard policy. Coverage does not apply to special exceptions identified in buyer’s policy, to rights asserted by buyer beyond the property legally described, to issues arising after the policy date or to matters known to, but not disclosed by, the buyer that existed before the policy date unless they were of record. More surprising to buyer might be standard printed exceptions to coverage. 

Standard policies do not insure against unrecorded special taxes, assessments for public improvements levied or assessed as of closing, or title problems that would be disclosed by inspection or survey of the property. This means there is no coverage against encroachments into the boundaries of the property from another structure, fence, wall, driveway or other improvement from adjoining property or similar encroachments from buyer’s property onto a neighbor’s property; unrecorded joint use agreements such as community driveways, party or retaining walls; or claims of a tenant or another person who, as of the date of the policy, is in possession of all or a part of the property pursuant to agreements not of record. Buyer’s claims related to other unrecorded matters may not be covered such as unrecorded liens for unpaid labor, services or materials for work-related the property; unrecorded utility easements, rights of way and public roads; and possessory claims not shown by public records, including prescriptive claims for an easement or ownership arising from another’s past use of property (adverse possession). Loss or loss of use related to the exercise of eminent domain or regulations or codes restricting property development, construction, planting vegetation, conducting business, converting a home to an apartment, and leasing the home to more than one family are not covered.

In conclusion, the standard title insurance policy covers only a limited number of contingencies. If more coverage is desired, it will boost the cost. Before signing the purchase agreement, you should consider talking with your real estate professional and your lawyer to help evaluate your transaction.