COMPARISON OF COVERAGES
RESIDENTIAL OWNER’S TITLE INSURANCE POLICIES
Title insurance is an essential part of almost every real estate transaction, yet many do not understand what it protects against, why title insurance is necessary, who it protects, and the cost of a title insurance policy.
What is Title Insurance?
The purchase of a home is an expensive and important purchase. The property owner and their mortgage lender want to make sure that no individual or government entity has any right, lien, claim to the property. Title insurance policies protect against any such rights, liens, or claims. Title insurance is insurance which ensures that an owner of a property has clear and marketing able title to a property. Title insurance was creased to address the deficiency of land records in the United States, which do not protect a purchaser of a property against any past title defects.
Unlike most insurance policies which protect against the risk of events in the future, title insurance exists to protect against losses from title issues or defects which occur as a result of things that happened in the past. Even the most careful title search will not reveal some situations or events that may cloud title to a property. Some (but not all) of the items protected against include: errors in the public record; fraud or forged documents; undisclosed heirs; and adverse possession. The title examiner and/or abstractor is not liable for such things that are not found in the land records during a title search, but a title insurance policy will protect the insured party from any financial loss by paying for the costs of a legal defense and monetary claims.
Why is Title Insurance Important?
Before issuing a policy, Metropolitan Title will have a title search and examination of the public records completed. With such a thorough examination of records, any title problems are usually found and cleared up prior to the purchase of the property. However, there is always the risk that something is missed. Just because a title search was completed does not mean title problems wouldn’t potentially arise in the future. Without title insurance, you could be faced with significant legal fees, costs, and even the loss of all, or a portion of your home. Your lender understands that purchasing real estate never comes without risk. As a condition for obtaining a loan, your lender will require that you purchase a lender’s title insurance policy. Unfortunately, this only provides coverage to the lender in the event of a title defect. An owner’s title insurance policy can offer you added peace of mind in knowing that the title to your investment is insured for as long as you own the home and after. It is important that you are aware of your protection options and are able to make the best decision for your needs. Some of these are: mistakes in the public record; fraud or forged title instruments; undisclosed heirs; adverse possession and other undisclosed prescriptive rights. Again, the title examiner is not liable for such things that are not of record, but a title insurance policy will financially protect the insured party by paying its legal defense fees and monetary claims.
Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title insurance company will pay the legal fees involved in defense of your rights, as well as any covered loss arising from a valid claim. That protection, which is in effect as long as you or your heirs own the property, is yours for a one-time premium paid at the time of purchase.
Who is Protected?
Both the mortgage lender and the property owner have an interest in the owner’s clear title to the property, and separate title insurance policies are available to protect their respective interests. Generally, if the purchaser is financing any portion of the purchase price a commercial lender will require that a Lender’s Title Insurance Policy be issued to insure the lender to the maximum amount of the loan. Though this policy protects the lender, it is the owner who will pay the premium at settlement as one of the costs of obtaining the loan. It is important to note that a lender’s title insurance policy is loan-specific. Therefore, if an owner refinances an existing mortgage loan with a new loan, even if it is with the same lender, the owner will have to pay for a new lender title insurance policy.
For the property owner to be protected, the owner must elect to purchase a separate Owner’s Title Insurance Policy which protects the owner of the property up to the face value of the policy (typically the purchase price). While a purchaser is not required to buy an Owner’s Title Policy, it is highly recommended that one be purchased. The purchase of a home is usually an individual’s largest investment and it would be ill-advised to leave any equity and investment in such an important asset unprotected. For the cost of a one-time premium payable at the time of purchase, the owner is protected, even after they have sold the property. The policy’s protections extend beyond the period of ownership and continue to defend an owner’s estate even after death of the owner.
Title insurance companies offer two different types of owner’s title insurance policies. The one purchased most often by home buyers in the Northern Virginia/DC Metropolitan area is the Enhanced Policy. Enhanced title insurance policies provide further protections by increasing the policy limits over time in recognition of increasing property values, mechanic’s lien coverage, as well as insuring owners against some post-policy events (e.g. zoning & building permit violations, encroachments, adverse possession, transfers into a trust).
The second type of owner’s coverage is known as the Standard Policy. An owner who purchases a Standard Policy will only be able to recover the policy value, which is the original purchase price of the home. A Standard Policy is enough to protect you should basic issues arise, where an Enhanced Policy offers the highest level of title insurance protection available. The differences in coverage is shown on the Comparison of Standard and Enhanced Policies below.
How Much is a Title Insurance Policy?
Please contact Metropolitan Title for a title insurance premium quote.
|COVERAGE||ALTA STANDARD POLICY||ALTA ENHANCED POLICY|
|Someone else owns an interest in the property||X||X|
|Improperly executed documents||X||X|
|Pre-Policy forgery of document||X||X|
|Defective recording of any document||X||X|
|Undisclosed restrictive covenants||X||X|
|A lien on title because of a security deed, judgment, tax or special assessment, or a charge by a homeowner’s association||X||X|
|Forced removal of a structure which encroaches onto another property or easement||X|
|Forced removal of a structure which violations a zoning law*||X|
|Forced removal of a structure which violates a restriction on Schedule B of policy||X|
|Inability to use land for a single family dwelling due to a violation of a zoning ordinance or restriction in Schedule B of policy||X|
|Pays rent for substitute land or facilities||X|
|Rights under unrecorded leases||X|
|Building permit violations*||X|
|Compliance with subdivision Map Act, if any*||X|
|Restrictive covenants violations||X|
|May, if any, not consistent with legal description||X|
|Covenant violation resulting in reversion||X|
|Violation of building setbacks||X|
|Post-policy damage from mineral or water extraction||X|
|Post-policy living trust coverage for trustee||X|
|Post-policy living trust coverage for beneficiary||X|
|Access – Actual vehicular & pedestrian access based on legal right||X|
|Post-policy automatic increase in value up to 150%||X|
|Post-policy adverse possession||X|
|Post-policy cloud on title||X|
|Post-policy prescriptive easements||X|
|Boundary walls and fence encroachments*||X|
|Insurance coverage forever||X|
*subject to a deductible and maximum indemnity liability, which may be less than the policy amount