Title insurance is a policy covering your ownership and rights in your property. It is intended to protect you in the future if there is a threat to your ability to use your property in all legal ways. It can also protect you from survey errors, and claims to ownership of a portion of your property due to conflicting surveys.
When you sign a contract to purchase a home, one of the contingencies usually built into the standard contract form is the requirement that you will receive a title insurance policy. While who pays for it is negotiable, it is most frequently the seller. They are providing insurance that they’re delivering a good title to you.
In some states, there is a basic title policy provided by the seller, but the buyer must pay for enhancements. Sometimes they’re very important, such as survey accuracy coverage. In other words, you may get a title insurance binder document promising you coverage, but it doesn’t include the accuracy of your survey in the basic policy. As a buyer you can add this coverage at an additional cost, usually advisable.
The Title Binder
Days to a week or so after the contract is signed between you and the seller, you’ll receive a title insurance binder. This binds the company to provide you with a policy, but there will be conditions.
There will be a list of requirements, usually the same ones seen on most binders, and necessary to make sure that ownership passes properly.
- A valid deed from seller to buyer
- Payment of all taxes up to closing date
- Satisfaction of all liens
- Sometimes quit claim deeds from previous spouses are required
These requirements are normal and handled in the course of the transaction process up to closing.
Sometimes buyers have a problem with the exceptions in the binder. These are things that are “excepted” from coverage, not covered. This list can be a long one, with a number of items on it. What you must understand is that what’s already done is done, and can’t be changed in most cases. In other words, if there is a document recorded at the courthouse that’s an easement for the electric company to use five feet along the edge of the property for buried lines, then that’s done. Even if they aren’t using it now, it’s recorded and the easement passes from owner to owner. It will be shown as an exception to coverage, meaning that the title insurer will not compensate you in the future if you can’t build a deck over that five feet.
Exceptions will include homeowner rules and covenants that are recorded. If you buy in a subdivision, and the covenants say that you can’t store a boat in your yard, then you can’t. The entire content of the homeowner rules and covenants will be an exception. You can’t come to the title company later with a claim that you can’t use your property the way you want to because you can’t store your boat.
Sometimes exceptions can be removed, but generally not. The seller can’t do anything about them in most cases. So, if you find an exception that you just can’t live with, the deal is usually over.
Survey and Revised Binder
The title binder is given to the surveyor, and they do the survey. Anything noted on the survey that is new information, will likely result in the issue of a new binder with a new exception. This happens a lot with rural property. If the surveyor finds a rough road, even a dirt track that indicates vehicle traffic has been using it, it will be drawn in, and the binder will be re-issued with an exception. The title company doesn’t know who has been using it, and will not cover you if they try to use it again, so put up a fence. If the road gets erased later, it won’t show up in the next survey when you sell, and won’t be an exception.
Lenders will require title insurance, including a rider covering them for their loan amount. It’s protection for you and the lender that the property is properly titled and ownership will be covered if there is a claim later.