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Title Insurance
- Standard vs. Extended Coverage
Authored by Philip J. Rygg
Title Insurance has been available for over a hundred years.
Initially, each insurance company issued its own form and type
of policy. The extent and type of coverage varied from
underwriter to underwriter. There was no standardization within
the industry.
Acting on a request from the lending industry, the American Land
Title Association, in the late 1950’s and early 1960’s,
initiated a program to standardize the products issued by its
members.
The basic formats in use today were adopted on October 17, 1992.
They include a standard Loan Policy, Construction Policy,
Owner’s Policy, Leasehold Owner’s Policy, the ALTA Residential
Title Insurance Policy and various forms of guarantees.
Title Insurance Policies now provide for the following:
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Coverage even after the insured has sold or has otherwise
disposed of the property.
A statement agreeing to defend, at it’s expense, any attack
made against matters provided for in the policy.
A reasonable length of time to clear up title problems
rather than pay a loss.
Exclusions from coverage for problems which result in no
loss to the insured.
Insurer’s right to recover from third parties who bear
responsibility.
Right of access to and from the insured property.
Marketability of title.
Title which is clear of any encumbrance, lien, or other
interest, except that which is noted on the policy.
An owner’s policy (either standard or extended) insures
those receiving the insured property upon the death of the
original owner. |
A title policy can be issued in such a manner that it provides
either “extended” or “standard” coverage – both
contain the same exclusions, conditions, and stipulations, but
there are significant differences in the level of coverage. The
standard policy limits coverage to “defects, liens and
encumbrances shown in the public records.” It does not, for
example, insure against encroachments and boundary disputes,
whereas extended coverage does.
Extended coverage, costing an extra amount over and above
standard coverage, broadens the scope of coverage to include
“off-the-record” matters. Hence, and on-site inspection if the
insured property generally precedes the issuance of an extended
coverage policy. If problems are discovered, they would be
excepted from coverage on either a standard or extended policy.
The primary difference between standard and extended coverage is
the inclusion of Schedule B Section 1 General Exceptions on the
standard coverage policy.
The General Exceptions:
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1. Taxes or assessments not shown in public records
2. Facts, rights, interests or claims, not shown in the
public record, but which could be discovered by a thorough
inspection
3. Easements, claims of easement or encumbrances not shown
in the public record
4. Boundary or encroachment disputes (may require a detailed
survey)
5. Unpatented mining claims, reservations or exceptions in
patents, water rights and claims thereto
6. Construction or mechanics liens |
Standard coverage does not provide insurance for the six
items listed above, extended coverage does.
As previously mentioned, in addition to matters of public
record, the extended coverage policy provides insurance for
title defects which are not recorded; matters, for example, that
are apparent on the ground, such as a boundary encroachment or
unfinished contract labor that could result in a mechanics lien.
Lenders usually require extended coverage. Because it is limited
to the remaining balance of the mortgage (at any given time),
and because the lender must have foreclosed and actually own the
insured property before a claim can be made, title insurance
companies theorize that the probability of a loss is very low,
and therefore, provide it willingly. Unless a problem is
detected during the inspection, extended coverage is usually
offered to lenders without a survey. The loan policy also
insures the validity and enforceability of the recorded security
instrument.
Because of this unlimited nature of extended coverage, title
companies are reluctant to add it to an owner’s policy, which
has a much greater potential for loss. For example, the holder
of an owner’s policy can make a claim at any time during the
period of his ownership, and depending on warranties of sale, at
any time after the property has sold. Also, because of the high
risk, the extended coverage protection against “boundary and/or
encroachment disputes” is not generally offered to an owner, at
least not without a detailed survey.
Source: The Land Title Institute, Inc. Washington DC
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