Title insurance is a crucial aspect of real estate transactions, providing protection against potential issues with the title of a property. However, not all aspects of a title are covered by title insurance. These uncovered aspects are known as title insurance exceptions. In this article, we’ll delve into what title insurance exceptions are, why they exist, and how they can impact property owners.
What Are Title Insurance Exceptions?
Title insurance exceptions are specific items or issues listed in a title insurance policy that are not covered by the insurance. These exceptions are typically found in Schedule B-2 of your title commitment. Their purpose is to define the scope of your coverage and inform you about potential characteristics of the property that might affect your ownership rights1.
Standard Title Insurance Exceptions
Rights or Claims of Parties in Possession
One common exception is the rights or claims of parties in possession not shown by public records. This could include renters or adverse possessors. For instance, if there’s an unrecorded lease agreement, the policy wouldn’t cover related issues1.
Easements Not Shown by Public Records
Easements that are not recorded in public records can also be exceptions. These might include implied easements or those established by long-term use, such as a shared driveway used by neighbors for years without formal documentation1.
Encroachments, Overlaps, and Boundary Line Disputes
This exception covers issues like a fence built slightly over a property line or discrepancies in property boundaries that would have been revealed by a property survey1.
Mechanics’ Liens
Mechanics’ liens are potential claims against the property by contractors who have performed work but haven’t been paid. This exception protects the insurer from liens filed after the policy date1.
Special Title Insurance Exceptions
Special exceptions are unique to a particular property and are identified during the title search process. These might include specific easements, covenants, or restrictions that apply only to the property in question2.
Why Do Title Insurance Exceptions Exist?
Title insurance exceptions exist to protect the insurer from risks that are either outside the scope of public records or are impractical to verify for each property. They help to define the limits of the insurance coverage and ensure that both the insurer and the insured are aware of potential issues that could affect the property1.
How to Handle Title Insurance Exceptions
Reviewing the Title Commitment
The first step in handling title insurance exceptions is to carefully review the title commitment, especially Schedule B-2, where the exceptions are listed. Understanding these exceptions is crucial to knowing what your policy covers and what it doesn’t1.
Negotiating with the Seller
If you find exceptions that concern you, it’s possible to negotiate with the seller to address these issues before closing the deal. For example, you might ask the seller to clear any liens or resolve boundary disputes2.
Obtaining Endorsements
In some cases, you can obtain endorsements to your title insurance policy that provide additional coverage for certain exceptions. This can help to mitigate some of the risks associated with the exceptions2.
Common Misconceptions About Title Insurance Exceptions
All Exceptions Indicate Problems
One common misconception is that all exceptions indicate problems with the property. In reality, many exceptions are standard and do not necessarily mean there are issues with the property1.
Title Insurance Covers Everything
Another misconception is that title insurance covers all potential issues with a property’s title. While title insurance provides significant protection, it’s important to understand its limitations and the specific exceptions that apply1.
Conclusion
Understanding title insurance exceptions is essential for anyone involved in a real estate transaction. By knowing what these exceptions are and how they can impact your property rights, you can make more informed decisions and better protect your investment. Always review your title commitment carefully and consider seeking professional advice if you have any concerns about the exceptions listed in your policy12.
I hope this article helps you understand the intricacies of title insurance exceptions. If you have any further questions or need more detailed information, feel free to ask!