Robert Farnsworth

TITLE INSURANCE SOME BASIC CONCEPTS You or your company have probably paid for a title insurance policy on real property, either as a seller of property or as a borrower. This article is intended to explain why title insurance is necessary and explain some of the aspects of title insurance policies. We will also address some of the commonly asked questions regarding title insurance. Q. What is title insurance and what risks does it cover? A. Unlike homeowner's or automobile insurance which insures against events which may occur in the future, title insurance protects the owner and/or lender against loss resulting from certain title defects which took place in the past (through the date of the title policy). Also, title insurance may protect the owner/lender from mechanics' or materialmen's liens, for work performed or materials furnished in the past which may result in liens being filed against the insured property. Title insurance covers certain title risks for as long as the property is owned by the owner or as long as the insured loan on the property is outstanding. In certain situations, title insurance may protect an owner of property after the property has been sold. A one-time premium is charged for the coverage. The coverage or insuring provisions of an owner's title policy state: SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS [the title insurance company], herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of: 1. Title to the estate or interest described in Schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right to access to and from the land. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title, as insured, but only to the extent provided in the Conditions and Stipulations. The insuring provisions of a lender's policy contain all of the insuring provisions set forth above and several other provisions pertaining to loans. Q. What matters are excluded from coverage? A. The following are excluded from coverage: 1. The effects on the property of building and zoning laws and any other matters which arise from governmental police powers, unless a notice regarding these matters has been recorded in the public records at the date of the policy; 2. Condemnation rights, unless a notice regarding the condemnation has been recorded in the public records at the date of the policy; 3. Matters which were known to, created by, or agreed upon by the insured at the date of the policy; 4. Matters of which the insured is aware but which are not disclosed to the insurer; 5. Matters which attach to the title or which are created subsequent to the date of the policy; and 6. Creditors' rights. In addition, there are several matters which are expressly excluded in lenders' policies. Q. What are the exceptions to coverage? A. There are a number of preprinted or standard exceptions which appear in all title policies, except policies called "extended coverage policies"; in Utah, these are: 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. 2. Any facts, rights, interests, or claims which are not shown by the public records but which could be ascertained by an inspection of said land or by making inquiry of persons in possession thereof. 3. Easements, claims of easement or encumbrances which are not shown by the public records. 4. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by public records. 5. Unpatented mining claims; reservations or exceptions in patents or in Acts authorizing the issuance thereof; water rights, claims or title to water. 6. Any lien, or right to a lien, for services, labor or material theretofore or hereafter furnished, imposed by law and not shown by the public records. Many of these standard exceptions will be deleted in an extended coverage policy. In addition there are other exceptions which the title company will include as a result of its search of the title to the property. These are known as "special exceptions." Special exceptions may be easements affecting the property, encumbrances such as mortgages or other financings affecting the property, leases and other matters which affect the title or use of the property. Q. Which interests in property can be covered by title insurance? A. The "Fee Simple" estate or the estate constituting ownership of the property and all property rights may be covered. Also, leasehold estates and easements may be covered by title insurance. Easements affording ingress and egress to the property are very important and should be covered by title insurance. Likewise the tenant's interest in long-term or important leases should be covered by title insurance. Q. If the insuring provisions of the policy cover access to the property, why is it important to be concerned about insuring a particular easement to the property? A. The insuring provision of the policy insuring "lack of a right of access to and from the land," only insures that the property is not landlocked, i.e., the title company must only show that there is access to the property. The access may be across a remote trail or a road which is extremely inconvenient to the property or which may not allow the type of use that the owner intends for the property. Q. What are endorsements and are they necessary? A. Endorsements to a policy may be unilaterally appended to the policy by the title company and may effectively reduce the title company's risk. (These endorsements will generally first appear in the commitment for title insurance or preliminary title report.) Often the title company will remove these if certain requirements are met. There are also numerous other endorsements which may be issued by the title company which provide additional insurance or coverage for the owner/lender. An example of this type of endorsement is a zoning endorsement which insures that the property is zoned in a particular manner. Endorsements requested by the owner/lender add to the premium to be paid for the policy. There are standard endorsements that have been pre-approved by the particular state's commissioner of insurance. The cost of endorsements varies greatly depending upon the type of endorsement being issued and the state in which the property is located. Sometimes the price for the endorsement is a percentage of the premium for the policy. Obtaining the correct title policy is very important. A prospective owner, lender, or tenant should carefully examine the commitment for title insurance or preliminary title report well in advance of the closing of a particular transaction in order to verify that the condition of title to the property is satisfactory and that the title policy will adequately insure title to the property. The above is only a general discussion of title insurance principles and may not be applicable to your particular ircumstances. You should consult with your attorney regarding title insurance for the particular transaction that you are entering into.
This article was reprinted from the Real Property Law Update newsletter that is a periodic publication of the Real Estate and Land Use Planning Section of Kirton & McConkie and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. Kirton & McConkie can be reached in Salt Lake City at (801)328- 3600.