Don’t just buy a title insurance policy; read the policy

October 19, 2014

Frequently, buyers and lenders believe they are appropriately “covered” in a real estate transaction because they were wise enough to buy a title insurance policy.  And, indeed, they have a leg up on other transaction participants when they take the step of buying a policy of title insurance.  (Read here, “Why Title Insurance.”)

But that’s not at all the end of the story.  Within each policy are exclusions form coverage and exceptions from coverage.

These fall primarily into two categories:

(i) Standard policy terms, which frequently are referred to as the “pre-printed exceptions.  By and large, these are non-negotiable, but at a minimum a buyer should be aware of the exclusions from coverage he is accepting as a part of the transaction.

(ii)  Specific exceptions relating to this property and this transaction.  After the real property title is examined, the party preparing the insurance policy simply lists within the title insurance policy what was found of record: mortgages, liens, easements, covenants, and restrictions.

When listed, these instruments become exclusions from coverage.  Thus, within the policy may well be exceptions to coverage that are entirely unacceptable to a buyer or lender.  The only way to know for sure the quality to title the buyer and lender are getting at a closing is to read both the title insurance policy and the entire contents of each document excepted in the policy.

This additional step makes all the difference between obtaining good title and simply obtaining title insurance coverage.

For more title insurance tips, please read these blog entries:

Why Title Insurance?

 Common title problems

How title insurance can get your transaction closed

I’m paying for a policy for the lender.  Do I have to buy an Owner’s policy as well?

Title insurance — a one time premium for a lifetime of coverage