Title Insurance and Available Policies for Home Buyers

     From the point of view of a home buyer, title insurance insures against financial loss from defects in title to real property.  (There is also title insurance that protects lender's financial interest.) Title insurance differs in several respects from other types of insurance. While most insurance policies guarantee against a specific type of loss (such as injury) at a future date, title insurance generally insures against losses caused by title problems that happened in the past (such as forgery, fraud, duress in the chain of title).

     Generally speaking, there are three policies on residential property available to a buyer: Standard Policy, Extended Policy, and Homeowner’s Policy. Title insurance companies search public records to develop and document the chain of title and to detect known claims against or defects in the title to the subject property. The Standard Policy usually contains provisions that involve only those matters in the public record. The Extended Policy requires a survey, which can be expensive and time consuming. Buyers want to choose this policy if they are concerned about possible encroachments. The Homeowners’ Policy has all the coverage of a Standard Policy, AND coverage for some issues that occur post policy (after closing). For details as to which exceptions and exclusions will be included in the specific policy one is obtaining, a buyer should check with the title company issuing the policy.

     Typically, most home buyers purchase a homeowners’ policy. The extended policy is usually recommended when buyers want to purchase a vacant land. However, some types of sellers will only pay for a standard policy. The first type of sellers who will only pay for a standard policy is the bank. Home buyers of a bank owned property will usually receive limited deed warranties and limited title insurance coverage. Due to the complexity of purchasing bank-owned properties, home buyers should seek legal advice in the matter of title insurance. The second type of sellers who will only pay for a standard policy is the builder. Home buyers who prefer the comfort of a brand new home should be prepared to pay the increased premium for the Homeowner’s Policy, if they prefer a better coverage than the Standard Policy.