Common Misconception about Title Insurance Policy

Figure 1. comparison chart from First
 American Title Insurance Company

    Title is a bundle of rights in real property. Since it is the seller who conveys title to a piece of real property, it is usually the seller who is responsible for purchasing title insurance for the buyer. Buyers can choose from one of three title insurance policies and specify it in the purchase and sale agreement: the Standard Policy, the Homeowner’s Policy, and the Extended Policy. Due to the misleading names of these insurance policies, home buyers may lose their right to the best policy if the buyers’ realtor does not have basic understanding of these policies or is careless.

     To show readers how the three policies differ from one another, I got a comparison chart from First American Title Insurance Company and it is displayed in Figure1. It can be seen from Figure 1 that the Homeowner’s Policy (Eagle Protection Policy) covers most items and it is the policy most home buyers would want to have.

     When buyers in the Puget Sound Area want to make an offer, their realtors use standard forms published by the Northwest Multiple Listing Service (NWMLS) to write up an offer. (Some sellers, such as the builders, may ask buyers to use their own purchase and sale agreement, instead of the standard NWMLS forms.) On the purchase and sale agreement published by the NWMLS, the default option for the title insurance is the Homeowner’s Policy, which is also the best policy for most home buyers*.

     However, some real estate brokers may mistakenly think that the standard policy is THE standard policy for home buyers and erroneously check the Standard Owner’s Policy on the addendum to purchase & sale agreement. Then buyers would lose the insurance coverage they could otherwise have had. Sometimes, sellers are only willing to pay for a Standard Coverage Policy. In that case, buyers may choose to pay for the increased premium and still have the Homeowner’s Policy. Once the title insurance policy is chosen in the real estate transaction, title insurance companies will not allow an upgrade if buyers change their minds later.

   The Extended Policy is for buyers who are concerned about possible encroachment. Extended Policy requires a land survey and has a higher premium. Buyers who purchase a vacant land or water front real estate often choose to have the Extended Policy, as the land surveyor can accurately determine the boundary of the property. Home buyers should contact their title officer for detailed coverage of their specific type of policy.