TITLE INSURANCE COVERAGE FORM ARCHIVE
(September 2023)
This is a repository of
articles and analyses relating to earlier editions of this coverage form.
|
|
|
Archive Index |
|
|
Analysis |
Title Insurance Coverage Analysis–03 10 Edition |
|
Reserved |
Reserved for future use |
A successful real
estate transaction requires that the buyer receive a valid, marketable title
when the deal is completed (closed). Mortgage companies that finance these
transactions require title insurance to protect against the many causes that
can create a defective title. Fortunately, such forms are available in a
standard format.
The American Land
Title Association (ALTA) forms are almost universally used throughout the
United States. Some states, such as California, New York, and Texas, have modified
the basic ALTA forms to meet state regulatory requirements. Standardized
endorsements are available as well, such as policy wording covering
multi-family residences. Forms not developed by ALTA should be reviewed carefully
for their specific coverages, exclusions, and limitations.
OWNERS INFORMATION SHEET
The ALTA
Homeowner’s Policy of Title Insurance Policy includes an information sheet. The
document notifies the owner of the policy of a number of key issues, such as
the fact that no other premium is due, and that the policy should be kept even
if the applicable property is sold/transferred to another party.
Note: Keep in mind that title insurance is nontransferable, even when the
related property is transferred.
It also advises the
insured to contact the carrier immediately if the insured is NOT an eligible
entity (natural person or an entity acting as a trustee for residential
property). The sheet also advises of where in the policy to seek information
on:
1. Filing a claim
2. Provisions that affect coverage under schedule A
3. Exclusions that affect coverage
4. Conditions the affect coverage
5. Exceptions to the policy coverage
6. The insurer’s obligation on providing a legal defense
COVERAGE
The ALTA
Homeowner’s Policy of Title Insurance applies to a one-to-four family
residence, but only if each insured shown in the declarations is a natural
person as defined in the “definitions” condition. Unless the coverage is
terminated by the carrier after payment of the policy proceeds under certain
specific circumstances as described in the policy, the coverage is in effect
“forever” for the benefit of the insured (not future property owners),
even if title to the land is later transferred to someone else.
This coverage
feature is quite important since, even after an insured may end his possession
of some particular property, there is a separate, ongoing liability connected
to that property. A situation could occur in the near or remote future that
results in a party filing a lawsuit related to the insured’s involvement with the
property.
The policy covers
losses from 29 specified causes, up to the amount of insurance plus cost,
attorneys’ fees and expenses. These specified causes of loss are:
1. Someone else owning an interest in the insured’s title.
2. Someone else having rights affecting the
insured’s title arising out of leases, contacts, or options.
3. Someone else claiming to have rights affecting the insured’s title
arising out of forgery or impersonation.
4. Someone else having an easement on the land.
5. Someone else having a right to limit the
insured’s use of the land.
6. Defective title.
7. Any of items 1-6 occurring after the policy
date.
8. Someone else having a lien on the insured’s title, including:
·
A
mortgage,
·
A judgment,
state or federal tax lien or special assessment,
·
A
charge by a homeowner’s or condominium association, or
·
Lien,
occurring before or after the policy date, for labor and
material furnished
before the policy date.
9. Someone else having an encumbrance on the insured’s title.
|
Example: Bill and Molly Smith are selling their
home, which they have lived in for 25 years, to Sam and Lily Brown. A title
search required by the Browns’ mortgage company reveals that a mechanic’s
lien was placed against the Smith’s property four years ago. It was placed by
a subcontractor who alleged that he was not paid by the general contractor
the Smiths hired to replace their heating and air conditioning system. This
outstanding lien would need to be resolved before the title insurance company
would be willing to issue a new title insurance policy. Acceptable
resolutions might include:
|
10. Someone else claiming to have rights affecting the insured’s title
arising out of fraud, duress, incompetency or incapacity.
11. The insured does not have both actual
vehicular and pedestrian access to and from the land, based upon a legal right.
12. The insured is forced to correct or remove an existing violation of
any covenant, condition or restriction affecting the land.
13. The insured’s title is lost or taken because of a violation of any
covenant, condition or restriction which occurred before they acquired the
title.
14. Because of an existing violation of a subdivision law or regulation affecting
the land so that:
·
The
insured is unable to obtain a building permit.
·
The
insured is required to correct or remove the violation.
·
Someone
else has a legal right to, and does, refuse to perform
a contract to purchase the land, lease it or make a mortgage loan on it.
15. The insured is forced to remove or remedy existing structures or any
part of them – other than boundary walls or fences – because any portion was
built without obtaining a building permit.
|
Example: The Johnsons are extremely happy with the
luxury home they bought two months earlier. Mr. Johnson is particularly
pleased with their barn which the previous owners
had enlarged and customized as a basketball court and gym. However, they are not
so thrilled when they receive a notice that no building permit was provided
for the modified barn and it must be torn down. The title insurance policy
will cover this loss, but the Johnsons will still lose the coveted property. |
16. The insured is forced to remove or remedy
existing structures, or any part of them, because they violate an existing
zoning law or zoning regulation.
17. The insured cannot use the land because its use as a single-family
residence violates an existing zoning law or zoning regulation.
18. The insured is forced to remove existing structures because they
encroach onto a neighbor’s land.
|
Example: A family is in the midst of selling their
home. A survey finds that their storage garage was built six inches on a
neighbor’s property. That neighbor (with whom they never got along with)
insisted that the garage be removed. |
19. Someone else has a legal right to, and does, refuse to perform a contract to purchase the land, lease it or make a
mortgage loan on it because the insured’s neighbor’s existing structures encroach
onto the land.
20. The insured is forced to remove existing structures which encroach
onto an easement or over a building set-back line.
21. The insured’s existing structures are damaged because of the
exercise of a right to maintain or use any easement
affecting the land.
22. The insured’s existing improvements, including lawns, shrubbery or
trees, are damaged because of the future exercise of a right to use the surface
of the land for the extraction or development of minerals, water or any other substance.
23. Someone else tries to enforce a discriminatory covenant (which is
based upon race, color, religion, sex, handicap, familial status or national
origin), condition or restriction that they claim affects the insured’s title.
24. A taxing authority assesses supplemental real estate taxes not
previously assessed against the land for any period before the policy date
because of construction or a change of ownership or use that occurred before
the policy date.
25. The insured’s neighbor builds any structures after the policy date,
other than boundary walls or fences which encroach onto the land.
26. The insured’s title is unmarketable, which allows someone else to
refuse to perform a contract to purchase the land,
lease it or make a mortgage loan on it.
27. A document upon which the insured’s title is based is invalid
because it was not property signed, sealed, acknowledged, delivered or
recorded.
28. The residence with the address shown in the schedule is not located
on the land at the policy date.
29. The map, if any, attached to the policy
does not show the correct location of the land according to the public records.
DUTY TO DEFEND
This policy section
advises insureds that the carrier providing the coverage will only defend
against a situation that actually qualifies for coverage under the ALTA
Homeowner’s Policy of Title Insurance. It also refers to Condition 4. “Our
Choices When We Learn Of A Claim” with regard to terminating any defense
obligation.
SCHEDULE A
This schedule
documents the applicable policy premium, policy amount (at the time the policy
is issued) and the policy effective dates. The schedule also includes areas to
enter the covered property’s street address, insured’s name, that party’s
insurable interest in the covered property and a description of that property.
The schedule also
includes areas that apply to Coverage items (see above) 14. 15., 16., and 18.
The information that appears in the schedule is the percentage or dollar
deductible (whichever is the lesser amount) that applies to each coverage, and
the insurance company’s maximum dollar of coverage it will apply to each
coverage for a single, eligible loss.
SCHEDULE B
This schedule
documents any situations that, along with the policy’s separate section of
exclusions, are also ineligible for coverage under the title policy.
EXCLUSIONS
The ALTA
Homeowner’s Policy of Title Insurance does not cover loss, costs, attorneys’
fees and expenses resulting from:
1. Governmental police power, and the existence
or violation of any law or government regulation. This includes ordinances,
laws and regulations concerning the building, zoning, and land use,
improvements on the land, land division, or environmental protection. However,
this exclusion does not apply to coverages 14, 15, 16, 17, or 24. shown above.
2. The failure of the insured’s existing structures, or any part of
them, to be constructed in accordance with applicable building codes.
|
Example: A home inspector finds that the home,
when built, was not properly reinforced to meet wind resistance standards (in
an area vulnerable to hurricanes). |
3. The right to take the land by condemning it unless a notice of
exercising the right appears in the public records at the policy date, or the
taking happened before the policy date and is binding on the insured if the
land was purchased without knowledge of the taking.
4. Risks:
·
That
are created, allowed, or agreed to by the insured, whether or not they appear
in the public records.
·
That is
known to the insured at the policy date, but not to the insurance carrier,
unless they appeared in the public records at the policy date.
·
That
result in no loss to the insured.
·
That
first occurs after the policy date. (Exception: This exclusion does not limit
coverages 7, 8.d., 22, 23, 24, or 25.)
5. Failure to pay value for the insured’s title.
6. Lack of a right:
a. To any land outside the area specifically described in the schedule,
and
b. In streets, alleys, or waterways that touch the land. (Exception:
This exclusion does not apply to coverages 11 or 18.)
CONDITIONS
1. Definitions
Easement
This is the right of someone else to use the covered land
for a special purpose, such as a utility easement (authorized assess to portion of property).
Known
This refers to information about which the insured has knowledge.
Land
The land or condominium unit described in the declarations,
plus any land (real property, as opposed to personal property) improvements,
such as a retaining wall.
Mortgage
This refers to a mortgage, deed of trust, trust deed or other
security instrument.
Natural person
A human being as well as any entity acting as a trustee.
Except for a trustee, a commercial or legal organization or entity is not
considered to be a natural person.
Policy date
The effective date shown in the declarations. However, if
the insured acquires an interest in the property covered after the effective
date shown in the declarations, the policy date is the date and time the
instrument was recorded.
Public records
This refers to records that give constructive notice of
matters affecting the insured’s title according to the state statutes where the
land is located.
Title
This is defined as the ownership of the insured’s interest
in the land.
Trust
This is limited to a living trust established by a human
being for estate planning purposes.
We/Our/Us
The insurance carrier issuing the policy.
You/Your
The insured shown on the declarations and any additional
insureds shown in a schedule attached to the policy.
2. Continuation Of Coverage
a. The policy
covers the insured forever, even after they no longer hold title to the
property. However, the insured cannot assign the policy to someone else.
b. The policy
also covers:
1) Anyone who
inherits the insured’s title upon the death of the insured,
2) The insured’s
spouse who received the insured’s title as part of a divorce settlement,
3) A trustee or
successor trustee of a trust to whom the insured transferred title after the
policy date, or
4) Beneficiaries of
the trust after the insured’s death.
c. The insurer
can assert any rights and defenses that they have against any previous insured under the policy.
3. How To Make A Claim
a. Prompt notice is required in
writing when the insured becomes aware of a loss that might be covered by the
policy.
b.
Proof of loss – The insurer can require the insured to sign a written statement
regarding the loss, provide access to records that relate to the loss, or
answer questions about the claim under oath. Failure
of the insured to comply with these conditions could result in coverage being
reduced or ended, but only to the extent that the failure or refusal affects
the insurer’s ability to resolve the claim or defend the insured.
4. The Carrier’s Choices
When A Claim Is Reported To Them
a. The carrier can:
1) Pay the claim.
2) Negotiate a
settlement.
3) Bring or defend
a legal action related to the claim.
4) Pay the insured
the amount required by the policy.
5) End the coverage
by paying the insured for the actual loss and the costs, attorneys’ fees and
expenses insured up to the time the carrier is obligated to pay.
6) End the coverage described in
coverage items 14, 15, 16 or 18 by paying the insured the amount of insurance
then in force for the covered risk and the costs, attorneys’ fees and expenses
incurred up to the time which the carrier is obligated to pay.
7) End the coverage by paying the
insured the policy amount then in force and all those costs, attorneys’ fees
and expenses incurred up to that time which the insurer is obligated to pay.
8) Take other appropriate action.
b. When the insurer
chooses options from paragraphs 4.a. (5), (6) or (7) above, all its obligations
for the claim end, including the obligation to defend, or continue to defend,
any legal action.
c. Even if the
carrier does not think the policy covers the claim, it may choose one or more of
its options as shown above, but by doing so, the carrier does not give up any
of their rights.
5. Handling A Claim Or Legal
Action
Under a Title Insurance Policy, the
insured and insurer have the following obligations regarding claims and
lawsuits:
·
The insured
is required to cooperate with the carrier in handling any claim or legal action
and must give the carrier all information relevant to the claim. If the insured
refuses to cooperate, the coverage will be ended or reduced, but only to the
extent that the insured’s failure to refusal affects the carrier’s ability to
resolve the claim or provide a defense for the insured.
·
The
carrier is required to reimburse the insured only for those settlement costs,
attorney’s fees and expenses that they have approved in advance.
·
The
carrier has the right to choose the attorney when it brings or defends a legal
action on the insured’s behalf and may appeal any decision to the highest
level. The carrier does not have to pay the claim until the legal action is
finally decided.
·
Even if
the carrier does not think the policy covers the claim, it may bring or defend
a legal action, or take other appropriate action, but doing so does not give up
any of its rights.
6. Limitations Of The
Carrier’s Liability
a. The carrier will pay no more
than the least of the following:
1) The insured’s actual loss.
2) The maximum dollar limit of
liability then in force for coverage items 14, 15, 16 or 18.
3) The policy amount then in force
plus any costs, attorneys’ fees and expenses which it is obligated to pay.
b. If the carrier is notified of a
claim and removes the cause of the claim with reasonable diligence, the
carrier’s obligation for the claim ends, including any obligation for loss the
insured had while the carrier was removing the cause of the claim. If the
insured cannot use the land because of a covered claim, the carrier will
reimburse the insured for rent for a reasonably equivalent substitute residence
until the cause of the claim is removed or the carrier has paid the insured the
amount required by the policy. If the claim is covered only under coverage
items 14, 15, 16 or 18, the payment required by the policy is the amount of
insurance then in force for that particular type of covered loss.
The carrier will also reimburse
the insured for reasonable costs to relocate any personal property. This
reimbursement is limited to transporting the personal property up to 25 miles
from the land, and repair of any damage to the personal property as a result of
its relocation. Reimbursement is limited to the value of the personal property
before it is relocated.
c. Any payment
made by the carrier reduces the amount of coverage, except for costs,
attorneys’ fees and expenses. Payments made for coverage items 14, 15, 16 and
18 reduce the carrier’s aggregate limit for those items, except for costs,
attorneys’ fees and expenses.
d. If the
carrier issues or has issued a policy to the mortgage holder that is on the
insured’s title and has not given the carrier any coverage against the
mortgage, then:
1) The carrier has the right to pay
an amount due to the insured to the mortgage holder.
2) Any amount paid to the mortgage
holder will be subtracted from the policy amount.
3) Any amount paid to the mortgage
holder for claims under items 14, 15, 16 and 18 will reduce the aggregate limit
for each of these items.
e. If the
insured does anything to affect any right of recovery against someone else, the
carrier can subtract from payment the amount by which the insured reduced the
value of that right.
7. Transfer Of The Insured’s Rights To The Carrier
a. When the
carrier settles a claim, the insured agrees to transfer all rights against any
person or property related to the claim to the carrier when asked. The insured
cannot do anything that would affect these rights, and
must allow the carrier to use their name in enforcing these rights.
b. The carrier
is not liable to the insured if the carrier opts not to pursue these rights or
if they do not recover any amount that might be recoverable from another party.
c. If the
carrier recovers money from another party, the money will be paid in the
following order:
1) The carrier
will be reimbursed for costs, attorneys’ fees and expenses the carrier made to
reinforce its rights.
2) The insured
will be paid for any loss that they have not already collected.
3) The carrier
will be paid for any money paid out because of the claim.
4) Any money
left after these payments goes to the insured.
d. If the
insured has rights from contracts from other sources to recover all or part of
the loss, then the carrier assumes those rights, even if those contracts
provide that those obligated have all of the insured’s rights. These other
sources could include indemnities, guaranties, bonds or other types of insurance
coverage.
8. Entire Contract
The policy and its endorsements
constitute the entire contract between the carrier and the insured. To
determine the meaning of the policy, the insured must read the entire contract.
The carrier must agree in writing to any changes. If the insured makes a claim,
that claim is subject to all the terms of the policy.
9. Increased Policy Amount
The policy amount shown in the
schedule will be increased by 10% each year for the first five years following
the policy date, up to 150% of the policy amount. The increase takes effect
each year on the anniversary date of the policy.
10. Severability
If any part of the title insurance
policy is held to be legally unenforceable, the carrier and the insured agree
that the rest of the policy is enforceable.
Note:
This provision could have been written more clearly. Its intent is, in case one
or more parts turn out to be illegal or void in a given jurisdiction, any
remaining, legally valid parts remain in force. Without this provision, the
defect of a part could, potentially, render the entire
agreement void.
11. Arbitration
Either the carrier or the insured can
demand arbitration if permitted in the state where the covered land is located.
The arbitration will decide any dispute between the carrier and the insured, and is binding on both. The arbitration shall be
conducted according to the Title Insurance Arbitration Rules of the American
Arbitration Association, but the insured may choose current Rules or those
Rules in effect on the effective date of the policy. The insured can get a copy
of these Rules from the carrier. The law used in the arbitration is the
jurisdiction where the land is located. The arbitration award may be entered as
a judgment in the proper court.