November 2013 Legal Update from Marty Stanton, Esq.
I know all of you have been waiting with baited breath for the sequel to the September Legal Update on "What is Title Insurance?" As promised, this article will discuss the two types of title insurance policies a buyer can choose, Standard or Enhanced. In order to do so it is important to understand what each policy covers, what are some of the important differences, and illustrate the differences with examples from actual cases.
Each of the aforementioned title insurance policies provide the owner protection from the following: someone else owning an interest in their title, documents not being signed properly, forgery, fraud and duress in the chain of title, defective recordings of documents, restrictive covenants, liens on title for deeds of trust, judgments, property taxes, special assessments, charges by homeowner's association and that the title provided is marketable – meaning the title is reasonably free from doubt. Even though both policies offer considerable protections, there are some significant differences between the two. The first is the Standard policy only covers the owner as of the effective date (recording of the deed) of the policy while the Enhanced policy covers enforcement actions post effective date. Another is that the Standard policy only covers the insured up to the sales price of the property, while the Enhanced policy increases in coverage 10% per year capping at 150% of the original sales price. One additional protection the Enhanced policy offers is building permit violations. In all, there are 28 additional types of coverage in the Enhanced vs. the Standard Title Insurance Policy.
We simply can't discuss in a single article all 28 ways the Enhanced policy protects your client's title. What we can do is show different examples of how purchasing such a policy was a good decision by the purchaser. The first involved a post settlement policy matter. An adjoining property owner removed a portion of a fence that was in disrepair. When they installed the new fence, they encroached onto the insured's property by a foot. They also built a slate patio to the fence line. Because this occurred after the effective date of the policy, it was covered by the Enhanced policy but would not have been covered under the Standard Policy. The insured was allowed to call on the title insurance policy to litigate the matter, get the adjoining owner to move the fence, the stone patio and pay his legal expenses. The second involved an individual claiming ownership in a property. A son signed the deed for his property over to his father, giving him title, and subsequently sold the property to a purchaser who had no knowledge of the prior transaction. Both policies would have covered the father's interest in the owner's title. But with the Standard Policy the owner's coverage would have been limited to the purchase price, whereas because the purchaser had Enhanced coverage it covered the sales price plus an additional 50% or $150,000. Lastly there was a case that involved a pool. Title insurers do not require title companies to search for valid building permits for built structures. In this case, a neighbor argued that the pool was constructed in an area that violated the building restriction line. The neighbor won the case and fortunately the insured was able to collect up to $25,000 for forced removal of the pool since it was built without a valid permit from a prior owner. As you can see, these are real examples of situations where the Enhanced Policy provided the insured real value.
Title insurance is often one of the least understood and discussed parts of buying and selling real estate. Most people are more concerned about the condition of the property, their monthly payment, and cash to close. Very few people question whether the person or entity selling the property has the legal authority to do so and even if they do, they rarely question if there are deeper problems. Title insurance is an acknowledgement that transferring title is an imperfect business where mistakes can be made. Simply put — if your client's title is ever threatened, they can rest easy knowing their title is insured and they will be represented to protect their interest for a one-time expense. Your client also has options as to how much coverage they want and need. All of our KVS attorneys are available to answer questions you or your clients may have about title insurance and differences between Standard and Enhanced Owner's Title Insurance Policies.
Happy Thanksgiving! – Marty
Marty Stanton conducts residential and commercial real estate settlements with KVS Title, LLC. Marty teaches continuing education courses for real estate and mortgage professionals. He is a member of the American, Maryland, and District of Columbia Bar Associations. He is also an affiliate member of the Greater Capital Area Association of Realtors.
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