What does a title insurance policy cover?
Dear Mr. Feichthaler:
You have said before that an owner’s title insurance policy is part of nearly every real estate transaction, and an important part of it. What does this policy insure, and how much does it cost every year?
— Kathryn R.
I handle about 300 real estate transactions each year, and all of them include a title insurance policy. This protects the purchaser of real estate from losses caused by defects in title that existed on the date the title policy was issued. This date would be the day of closing. So, for instance, you purchase a home that has a mortgage against the property, and this mortgage was not satisfied at closing by the seller and their closing agent, the mortgage would still be on the property. The title policy issued by the law firm or title company would indemnify you. The insurance company would take all steps necessary to clear title (in this case, pay off the mortgage that should have been paid at closing). In Lee County, the seller customarily pays for this policy, so there is no reason for a buyer to reject a policy. This policy does not take the place of hazard or flood insurance, it only covers potential defects in title.
An example that has arisen twice in the past week is as follows (note, these transactions closed at a local title company, not with our law firm): Buyer purchases a lot from a foreign seller. Title work is completed, there are no mortgages or liens, the buyer pays the title company the money, and the title company issues an owner’s policy and records a deed transferring the property to the buyer. Later, it is determined that the actual foreign owner had no knowledge of the sale, and that a fraudulent sale occurred. This means the deed was also fraudulent, which means that the buyer is out the money and doesn’t own anything. The title insurer was responsible to clear title, in this matter they obtained a deed from the real owners, and paid them market value for the property. If the insurer could not clear title, they would have been required to compensate the buyers for their losses.
Even though the buyer did eventually obtain clear title to the property, the process is not quick. It could take months, possibly years, for a title claim to be fully resolved. This means that the buyer could not proceed with building their dream home until it was resolved. It is important when engaging in a real estate transaction to work with a law firm or title company that is experienced and always takes all steps necessary to avoid title claims like this. In the matter above, the fraud was easily detectable with a small amount of due diligence by the title company.
Also, the title premium paid by the seller at closing is a one-time charge. The policy will be valid so long as the buyer owns the property, regardless of how many years. However, if a buyer of vacant land builds a home, the policy limits are still the original purchase price of the lot, unless an increase in insurable value is obtained from a law firm or title company that offers insurance, at an additional premium. In my 24 years of legal practice, I have never been subject to a title claim on a transaction for which I handled title work. However, in these days of constant threats of fraud, it takes significant effort and experience to consistently avoid issues like the situation above.
Eric P. Feichthaler has lived in Cape Coral for over 33 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.
Mr. Feichthaler can be reached at email@example.com, or (239) 542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.