Most buyers simply order title insurance from whatever company is recommended by their realtor or banker. They then pay for this insurance at closing without any understanding or explanation of what the insurance covers or more importantly, doesn’t cover.
Our firm owns both Quality and Action Title Companies and we also assist other title companies with legal issues or get involved after title insurance doesn’t cover the title problem. The first thing to know about title insurance is that the buyer or borrower can choose the company and, just like anything else, there is a wide range of expertise and service among title insurance providers. Rates and closing fees can vary widely as well so it’s good to shop around before ordering insurance.
Here’s a couple common scenarios where people get into trouble:
All title insurance policies will list various exceptions to their coverage but many companies don’t really explain those exceptions at or before closing. We just finished a lawsuit where the homeowner had insurance but there was an exception for all platted streets and alleys. This exception was not discussed at closing and sounded routine to the buyers. Years later the buyer tries to pull a permit for a garage and discovered that there are numerous platted streets and alleys running through their yard, septic system, garden and even part of their existing home that were platted but never built. They were in a position where they could not remodel, refinance or sell without going through a legal process to force the City to vacate or abolish some of these platted roads. The title company did not reimburse the homeowners for these legal expenses.
Another misperception is that a title insurance policy covers your intended use of the property. Maybe you are buying a commercial property and want to change the type of business or even just continue the existing operation. Or, you are buying a lake home but want to remodel or add another garage. You would need to work with your local zoning officials, your attorney or an experienced realtor before purchasing the property as many current uses, expansions or remodels will not be approved. Many uses are considered legal nonconformities. This means that the current use can remain even with a change of ownership but if you want to remodel or expand that use the local zoning laws will create a lot of roadblocks.
Access and encroachment issues are always something to review as well. Again many potential problems are simply buried in the fine print of exceptions on many title policies. And, even with an experienced title agent, they can only advise a client based on what information they have at their disposal. Many parcels are bought and sold without a recent survey – title insurance doesn’t always cover issues that would be discovered with a survey and it’s always best to discover these issues before you purchase the property.
Our advice is work with an experienced title agent and realtor so you know what questions to ask before closing rather than being stuck with the costs of fixing things after you are in title.
Please send any request for topic suggestions to firstname.lastname@example.org. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.