What does a title insurance policy look like?
What is Title Insurance?
We feel pretty confident in saying that no one wants to live in a haunted house. Casper may have been cute, but his uncles weren’t particularly fun. But hauntings come in many forms, and you don’t want to wait until it's too late to find out what’s spooking your new home!
Our recommendation? For all things otherworldly, call a medium. For human problems — particularly those involved in purchasing new property — you need title insurance.
Buying any property involves some risk, ghostly or otherwise. You might not know what the neighbors will be like, but you can certainly find out if the roof is structurally sound. But what about defective titles or problems with the actual deed to your property? What happens if you uncover old debts, liens, or other issues related to your right to own the home?
That’s why title insurance is an absolute requirement: it protects both the homebuyer(s) and the mortgage lender against any financial loss or damage that might result from a defective title. Your title policy could cover claims filed against a title such as back taxes, conflicting wills, and outstanding liens — all things that your real estate agent might not even know are in play when you start looking at the property.
Title companies offer different services but chief among them is a title search. This is the process that confirms the seller has the right to legally transfer the title to the new homeowner. Because obtaining a title confirms the homebuyer’s ownership rights, this is one of the most important steps to any real estate transaction.
What Does Title Insurance Cover?
In any real estate transaction, the owner and the lender are the two main participants — and so there are two types of title insurance policies that cover each party: owner’s title insurance policy and lender’s title insurance policy. So before you buy a home, you’ll want to understand how these two policies differ and what each covers.
An owner's policy provides protection against potential hazards for homeowners. It protects the homeowner from conflicting claims related to the legal ownership of the property; outstanding property taxes; lawsuits; illegal encroachment; and problems and disputes resulting from wills and flawed public records, among others. Crucially, an owner’s title insurance lasts as long as the insured owns the property.
A lender’s policy is purchased by the borrower and covers the lender up to the loan amount. It lasts only until the loan is paid off.
Although the durations differ, both policies generally cover the same risks. These can include:
- Mistakes made when recording or executing legal documents
- Fraud or forgery
- Liens on the property
- Adverse possession claims
- Unpaid taxes
- Previously unknown heirs
- Zoning disputes
What Does a Title Insurance Policy Look Like?
Title insurance terminology differs somewhat to that of other insurance policies. If you want to get into the weeds, feel free to check out the American Land Title Association (ALTA) website. If that feels like a lot, we’ll break down the following key sections of a title insurance policy for you:
- Covered Risks
- Schedule A
- Schedule B
The first section of your title insurance will outline the risks that the policy covers. Any exclusions, exceptions, or conditions will also be explained here. But the following are the most common covered risks that you’ll find in your title insurance:
- The risk that someone else owns the property
- The risk of any encumbrance on the title caused by fraud
- The risk that no one has access to and from the property
- A lien for any due taxes or unpaid assessments
- An unmarketable title, meaning the property cannot be sold due to a title defect
You’ll want to review the policy paperwork to get a thorough understanding of what exactly your title insurance policy covers. If you’re at all confused, you should definitely ask your insurance agent, because any misinterpretation could influence the value of the property and its future sales price.
Unfortunately, no insurance will cover a policyholder in all circumstances. Similarly, title insurance policies come with exclusions that limit their coverage. In title insurance, the exclusions are risks not covered by the title company, and for which the title company assumes no liability. This means that if any of those issues crop up in the future, the title company cannot be held liable.
In general, exclusions are outlined for clarity’s sake since they often cover concerns unrelated to matters of title. Broadly, exclusions fall into two categories:
- Concerns pertaining to governmental regulations on the property or land
- “Rights” by eminent domain
In addition, the policy does not insure against any defect or title issue that is created or attached to the property after the date of the policy. It also does not protect against the effects of bankruptcy laws. And one final note: Exclusions apply to every policy and are not transaction specific.
Like the declaration page of your many other insurance policies, Schedule A contains the basic policy information. Refer to this section to understand your coverage and find information about the premiums, purchase price and dates, legal description of the property or land insured, and the amount of insurance, among others.
One important note: Your title insurance is only valid if Schedule A is attached to the policy document. Read all details mentioned in the document to verify that, to the best of your knowledge, the information is correct. Take appropriate action if and when anything is inaccurate or unclear.
In the course of completing a title search, the title company will likely uncover information relevant to the title or property. This will lead to exceptions that will not be covered by the title policy. Unlike the exclusions mentioned above, these are transaction specific.
Some common exceptions include unreleased mortgage loans on the property, taxes, liens, easements, and any restrictions on the use of the land. In addition, it also includes limitations on the title, such as survey issues or homestead rights.
This section outlines the relationship between the title insurance company and the insured.
The first paragraph includes the glossary that defines the terms used in the policy as a means of preventing future ambiguity. Terms include things like “Insured”, “Insured Claimant”, “Premiums”, and “Public Records.”
The Conditions section also explains how the insured can provide notice of a claim, how claims are handled, and the evidence required to prove loss, among other information.
Find the Best Title Insurance Policies with Marble
There are many truths governing our world: gravity keeps us grounded, Rachel should never have quit her Paris job to be with Ross, and anyone you ever date will always come crawlin’ back. Such is the case with homeownership. If there’s a past problem, you can be sure that it will rear its ugly head again.
We know that title insurance can be confusing, but this policy is essential in helping you avoid future hassles related to your new home, including property fraud, refinancing issues, and illegitimate claims. That’s why we recommend you go through all the sections of your title insurance policy with a fine-tooth comb so that you really understand what you’re getting.
And if you’re looking for title insurance, check out Marble, where you can compare policies and get quotes from different title insurance companies. To find the best policy for your needs, sign up for Marble, and let your insurance earn you rewards.