What is so different about Real Estate Title Insurance? Unlike most other forms of insurance, which insure against events which may occur in the future, title insurance provides coverage for past events. A title company issuing an owner’s policy agrees that when you purchase property, you will have ownership without limitations other than those specifically described in the policy. The title company will, therefore, conduct a thorough search of public records to make sure that they describe your interest correctly and that any defects in title, liens, rights of others, or any other limitations on your ownership are listed in the policy.
Before a title policy is issued, usually after signing a sale contract, a title commitment is ordered. The commitment is in a form similar to the final title policy and is an agreement to issue a policy if your transaction closes and if certain requirements are met. The parts of a title commitment are the following:
- Schedule A sets out the current owner’s name, the legal description of the property, your name as you intend to take title to the property, and the amount of insurance coverage (usually the sale price). The effective date of the commitment is also listed here. You will only be covered for defects in title occurring before that date.
- Schedule B-1 sets out requirements which must occur before the title company will issue the policy. These requirements typically include the recording of your deed and your deed of trust or mortgage, the recording of any releases of prior loans including those of your seller’s lender, the payment of real estate taxes and any assessments, and the removal of liens.
- Schedule B-2 Exceptions sets out all of the items which they will not agree to cover on the final policy. These include standard exceptions such as easements or liens not shown in the public record and non-standard exceptions such as recorded easements, liens, or other clouds upon the title.
Depending on the exception, it may or may not be acceptable to allow it to remain on your final policy. Your attorney will be able to advise you regarding the importance of each exception and can negotiate the removal of these exceptions from your title commitment before closing.
Your attorney will also make sure that your title company has agreed to provide any special endorsements on your final title policy. Endorsements expand or modify the coverage afforded in a title insurance policy. Examples are survey endorsements assuring the policy holder that the land is as shown on the plat and access endorsements assuring that the property has access. They may not always be needed, but depending upon your property and state of title, endorsements may be important.
After your closing, a title insurance policy will be issued based upon those items remaining in the title commitment and upon those events described in Schedule B-1 having occurred. After closing, the title company will conduct an updated search to the time of recording and will update the effective date of your policy to the time and date of that search. Your attorney will carefully review the title policy after it is issued to make sure that exceptions which the title company has agreed to remove do not appear on the final policy and that any endorsements are attached.
Title review allows resolution of issues first appearing in a commitment and proper transfer of title. We care about your title insurance because you should know exactly what you are purchasing when you close a real estate transaction.