Title Insurance is one of the most misunderstood topics in the real estate industry. The majority of consumers do not understand what it is, what it covers or how it protects their interests. Much like many of the inspections buyers undertake such as home inspections, review of structures or mechanical systems and surveys, review of the title is also a form of due diligence. Unlike the other due diligence, title insurance provides an additional value after the purchase of the home to protect the property rights of the homeowner. Other traditional forms of insurance such as life, health, property and casualty ensure events that might occur in the future. However, title insurance insures the past. Typical coverage includes the history of the property and that no liens, judgments, defects, or clouds on title exist.
There are two types of title insurance policies that exist. Each type of policy protects a different stakeholder in the transaction. The first is an Owners Title Insurance policy where the insured under the policy is the homeowner. The amount of the policy is the purchase price of the property and it exists to protect the property rights of the homeowner. There are two levels of owner’s title insurance coverage that can be obtained when a homeowner is selecting coverage. It is extremely important that the buyer is made aware that one of the policies is much more comprehensive than the other. One coverage level is known as a Basic Owners Policy 2006. The other level of coverage is the ALTA Homeowners Policy (2013). The latter level of coverage is also referred to as an Enhanced Policy. Under this policy, there are a significant amount of additional coverages that are included. Some of these coverages are items such as insured vehicular access, forced removal of existing structures, lack of building permits and zoning matters. The Enhanced Policy also includes a feature where the policy value automatically increases up to an additional 50% of coverage amount in the event the property value increases during the period the consumer owns the home. This occurs without any additional payment by the homeowner. It is not a requirement for a purchaser to obtain an Owner’s Title Insurance policy as part of their transaction. However, we find that the average consumer has a difficult time underwriting and understanding the risk of not purchasing a policy to protect their interests.
The other type of title insurance policy is known as a Lenders Title Insurance policy or loan policy and it exists solely for the benefit of the lender. The policy guarantees a lender has their required lien priority and there are no missing ownership interests in the property. The majority of lenders require a loan policy as a condition to lending their money to a consumer. The policy coverage amount is usually the same as the loan amount being extended to the borrower. It is very important for homeowners to understand that while they are required to purchase the policy for the benefit of their lender that they have no coverage themselves under this policy. They would be required to purchase an owner’s policy to protect their interests.
While we frequently receive inquiries about whether homeowners need to purchase a policy, most people come to the decision that the risks associated with not obtaining a policy far outweigh the cost of purchasing the protection. All owners title policies are one-time purchases that insure your rights under the policy for the entire duration that you have an ownership interest in the property. If you have any questions about title insurance products and which policy would be a good fit for your client, please call our office at 410-266-3600.
Terry Liff is a founder and Partner of Liff, Walsh & Simmons and the Executive Vice President of Eagle Title. His practice focuses on real estate and business transactions, business representation, as well as trust and estate related matters. Terry’s clients include developers, contractors, local and regional financial institutions, as well as business owners.