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A contract of insurance provided to indemnify a purchaser, mortgagee, or any other party with an interest in land, against an unknown defect of title or against a loss due to any encumbrance, lien, etc., that is defective or has not been disclosed when a property is acquired or mortgaged. The contract (or ‘insurance policy’) usually covers such matters as defective or lost documentation, mistakes, maladministration, forgeries, lack of capacity to contract (as with minors), etc., but does not indemnify a purchaser who fails to make proper inquiries prior to purchase. As a rule, title insurance is intended to provide compensation in the event that an unknown defect impedes the use or subsequent sale of the property, together with an agreement by the insurer to defend lawsuits arising as a result of a defective title. Unlike most other forms of insurance, title insurance protects the policyholder against an event or act that has already occurred, rather than one that may occur in the future; it is not a policy of guaranty; and usually entails a one-time premium. A title insurance policy is normally personal to the insured and is not assignable nor does it run with the land. A title insurance policy, like any other insurance policy, contains exclusions and exceptions. In particular, a title insurance policy is likely to exclude liability of the insurer for such matters as condemnation; governmental regulations; changes in zoning ordinances or similar regulations; most developments on adjoining property or changes to a public highway (unless they affect an existing easement); non-recorded mechanic’s liens; tax reassessments or special assessments made after the policy is issued; the rights of those in possession of the property and not shown on the public records (including the rights of an adverse possessor); matters that are apparent from a physical inspection of the property (such as easements) and shown by the public records; defects known to the insured but not recorded or notified to the insurer; non-recorded encroachments, boundary disputes etc. that would be ascertained from an accurate survey of the property; and matters that the insured expressly assumes or agrees to exclude; or matters arising from the insured’s misconduct, fraud, lack of good faith etc. (Anno: 87 ALR3d 515: Title Insurance—Exclusion of Liability). However, the owner or mortgagee may be able to acquire an ‘extended insurance policy’ to cover some of these risks. Title insurance is normally taken out at the time of a purchase of property by the new owner (an ‘owner’s policy’); or, where applicable, when a new mortgage loan is made (a ‘lender’s policy’). Such a policy may be issued by the same company that has prepared the abstract of title, or may be based on an abstract prepared by an independent lawyer or an approved abstract company, in either case it provides protection against errors and omission arising during the preparation of the abstract. Occasionally the insurance company may issue the policy based only on an examination of the most recent transaction documents and accept the risk of prior defects of title. The majority of policies are based on forms produced by the American Land Title Association (ALTA) (except California, which uses the California Land Title Association (CLTA) policy for homeowner and noninstitutional lenders, and New York and Texas which have developed their own policy forms). The policy is generally issued by one of the companies established in the applicable state. Sometimes called ‘fee insurance’ when the policy is intended to indemnify the insured if his title turns out not to be a fee simple interest but is, in some way, limited or qualified. A title insurance policy may also be called a ‘title guaranty policy’ or a ‘guaranty title policy’. Title insurance is not required in a state that has adopted the Torrens title system, or a variant thereon, as under that system the title is verified and guaranteed by the state after recordation.
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Neel Title Corporation |
© Copyright 2010, Neel Title Corporation |
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