Much has been written lately about title insurance (see our related post and the necessity for it). What you might not know; however, is that significant changes have recently taken place in the title insurance industry and ALTA (American Land Title Association) is now offering an "enhanced" title insurance policy which provides significantly more coverage than the standard owner's title insurance policy of past years.
While doing a targeted search on the internet, I unearthed this gem: "70+ ways to lose your property" which was published by "First American Title". Now, being in the real estate industry, I consider myself pretty up on title issues and the things that might prevent someone from going to settlement, but, I never imagined there were so many things that could occur that actually might cause a homeowner to lose a home! If I wasn't already a firm believer in the benefits of title insurance, this document would surely convince me. While space doesn't allow here for me to include the list, check it out for yourself, it's pretty interesting reading!
To give you a baseline for comparision, I will list some of the areas of "standard coverage" on an owner's title insurance policy, most are pretty self-explanatory but I will give additional details on the ones I think most people might not know:
- Mechanic's Lien coverage (someone who has done work on your home and then put a lien on the house because they weren't paid for the work they did)
- Third party claims and interest in the title (someone other than you tries to claim the property as their own)
- Improperly executed documents (oops, the title company had the Seller sign in the wrong place!)
- Pre-policy forgery, fraud or duress (The previous husband's girlfriend signed the deed instead of his wife!)
- Non-recorded restrictive covenants
- Defective recording of documents (The clerk of the court had a hangover that day, and messed it up!)
- Prior recorded liens not disclosed in the policy
- Unmarketability of the title (Can't sell the home because an prior "unreleased" mortgage, will pay to clear this up)
- Policy insures anyone who inherits the property from you
- Policy insures the Trustee of your estate-planning trust
- Policy insures the beneficiaries of your trust upon your death
The list above represents a "traditional" title insurance policy. One of the things that I think is an especially great feature of the "enhanced policy" is that it would cover you, the homeowner, if your neighbor initiated a boundary line dispute or your homeowner association decided that you were in violation of a "restrictive covenant" and you were required to remove a fence or deck, for example. The "Enhanced" version of the title insurance policy is kind of like a hybrid policy. The new version offers expanded legal coverage that fills in the gap between the old style of title coverage and your standard homeowner's insurance policy. The cost difference in the D.C. corridor area between the two types of title insurance policies is about 20%
Let's take a look at some of the items that are covered with an "Enhanced Policy" (keeping in mind that it includes all of the items listed above which are in the standard policy).
- Automatic increase in coverage up to $150% (not based on inflation) meaning equity in your home gained by improvements you've made to the property
- Post policy forgery
- Post policy encroachment onto uninsured land
- Legal right to actual vehicular and pedestrian access (to and from the land based on legal right)
- Coverage for certain losses due to zoning law violations (subject to a deductible and liability limits)
- Coverage for certain losses due to existing violation of subdivision law (subject to a deductivle and liability limits)
- Post policy structural damage from third party easement for mineral extraction (so you're covered if the government decides to go mining for gold in your driveway!)
- Violation of restrictive covenants identified in the Policy:
- resulting in loss from correction or removal (an example of this would be the homeowner association cites you and says you have to remove roof shingles which are the wrong color, or you have to re-paint the home as it is the wrong color as required by the homeowner association regulations.
- Forced removal of existing structures that:
- encroach onto an easement identified in the policy
- violate a building restriction line identified in the policy
- encroach onto neighbor's land (built a shed or a fence that went over your property line onto your neighbors)
The bottom line is that an owner's title insurance policy protects your interests as the owner of the property and is always worth the investment, regardless of which policy you choose. Even if a property has been "in the family" for decades and you are positive that there are no hidden defects or unknown heirs waiting in the wings to make a claim on your property, you would still have to hire legal counsel to defend your rights should there be a claim, rightful or not. A title insurance policy actually covers the cost of defending you against any title claims that might happen down the road and, in my opinion, this benefit alone is worth the price of admission!