top of mind
Title Snafus and You
Helping clients understand the complexities of title insurance
keeps potentially small legal issues from snowballing.
Your client is under contract to buy a
condo. The seller’s disclosure statement
mentions: “The deeded parking stall is
space #8, but all present and previous
owners have been using space #3.”
The transaction closes smoothly, but
afterward, your client receives a letter
from another owner notifying her that the
parking space she’s using isn’t hers. Your
client notifies her title insurer, who denies
coverage because space #8 was insured
by the policy, her use of space #3 was not
insured, and the issue was disclosed by
the seller. As a result, your client is left to
address the issue at her own expense. A
lawsuit will most likely be filed unless a
compromise between the affected unit
owners can be reached. Your client is left
wondering why you didn’t help her catch
this in the first place.
As you can see, it’s important for
home buyers to be aware of title insurance matters during transactions. And
while it is not your role as a real estate
practitioner to offer advice about specific
policies, it is helpful if you can point out
issues that clients need to investigate
further. After all, the seller’s disclosures
may affect your client’s title insurance
coverage for future claims. Here we clarify eight common misconceptions that
consumers and real estate professionals
may have about title insurance.
1. Title insurance only insures “clear
title.” Policies typically cover defects,
liens, or encumbrances on titles. But,
depending on the form, they may also
cover losses related to access, building
permits, subdivision of the land, zoning,
land use, encroachments, setbacks,
easements, damage to structures, and
supplemental tax assessments.
2. Title insurance covers matters
shown in the policy. If an item is listed in
Schedule B of the policy, any loss arising
from that item is exempt from coverage.
For example, if Schedule B of the policy
lists a roadway easement in favor of the
owner of the adjacent property, any dispute or loss arising from that easement is
not covered by the policy.
3. Title insurance guarantees a property is free of liens and clouds against
title. Title insurance is not a guarantee.
It’s an insurance contract, indemnifying
the insured for actual loss arising from
matters covered under the policy’s terms.
Not everything is covered. For example, if
an insured person, before closing, knew
of an unrecorded roadway easement in
favor of her neighbor, the policy would not
cover loss arising from the easement.
4. If a title issue is discovered, the title
insurer must fix it so escrow can close
on time. The title insurer has the right
and obligation to investigate the claim,
even if it was tendered under time constraints imposed by a pending escrow.
The title insurer is not required to fix the
problem so escrow can close on time, nor
is the insurer liable for loss arising from
delay or loss of the sale.
5. The title insurer won’t do anything
if there’s no coverage under the policy.
In cases where there’s no coverage for a
claim, the title insurer has the right, but
not the obligation, to address the claim
and the insured has a duty to cooperate.
6. The title insurer will clear title if a
covered title problem is discovered.
The title insurer is not required to clear
title. If a claim is covered, the title insurer
has options it can exercise, such as
1) attempting to fix the problem; 2) filing
a lawsuit; 3) negotiating a settlement with
the insured or a third party; or 4) paying
the insured’s compensable loss.
7. Only one title insurance policy is
paid for at closing. If the property is
purchased with a loan, two title policies
are usually paid for at closing: an owner’s
policy and a loan policy. The owner’s
policy insures the person or entity that
acquired title and the loan policy insures
8. Refinancing a loan does not require
a new title insurance policy. The lender
will generally require a new loan policy
insuring the refinance mortgage. Sometimes an endorsement to the original
policy or other arrangements may be
made to reduce the cost of insuring the
Aimee Hui is an attorney
with Boss Law Firm APLC