TYPES OF TITLE INSURANCE
In a recent blog post (What is Title Insurance & Do I Need It) I discussed the basics of title insurance. This blog post discusses the different types of title insurance that are generally available in a residential real estate closing.
The Loan Policy: A loan policy of title insurance is always required by the lender on a residential mortgage loan. It is one of the typical closing costs in a residential real estate transaction, and in Connecticut is a buyer/borrower expense. The loan policy of title insurance insures the lender that it has a valid, first mortgage lien on the property. The loan policy does not provide any protection for the owner, since the owner is not a named insured under the policy. The protection is only provided to the lender.
The Owner’s Policy: There are two types of owner’s policies of title insurance generally in use in Connecticut for residential homeowners, the standard policy and the enhanced policy.
Standard Owner’s Policy: The standard policy provides the basic protection that you are the owner of the property, that there are no liens or mortgages except as stated in the policy and that there are no other encumbrances (easements, rights of way, or other rights) except as stated in the policy. It also provides coverage for items such as forged deeds in the chain of title, errors in the title search, mis-indexed items in the land records, and unreported tax liens. The policy also insures that you have legal access to the property. Most importantly, if your title is challenged or found to be defective, or if a prior lien holder tries to commence a foreclosure action, the title insurance company will provide legal counsel to defend the title.
Enhanced Owner’s Policy: All the title insurance companies also offer an “enhanced” coverage title policy, for an additional premium. The enhanced policy provides the same coverages stated above for a standard policy plus provides survey coverage without a survey, in other words the enhanced policy insures that you own the land described in your deed without hiring a surveyor to confirm the exact boundaries and the location of structures on your land. If you have a property line dispute with your neighbor, this policy will provide you with an attorney and pay the cost of resolving the dispute. The enhanced policy also provides some coverage for permit issues (that resulted from a prior owner’s actions) such as a deck that was built without a permit and now the municipality orders removal of it. Coverage is also provided for the forced removal of an existing structure due to it being located in a setback area or on a neighbor’s land, or in an easement area. The title premiums are determined by the amount of the mortgage for the loan policy and the amount of the purchase price for an owner’s policy. The premium is payable at closing as part of your closing costs, and is a one-time premium. In a typical residential transaction of a $200,000 house with a $180,000 mortgage, premiums are as follows (using the premiums from Connecticut Attorney’s Title Insurance Company, one of the major title insurers in Connecticut):
$180,000 loan policy $680.00
$200,000 standard owner’s policy $795.00
$200,000 enhanced owner’s policy $874.00
In this example, the lender requires you to spend $680.00 to purchase their loan policy. The title company will credit that amount against the purchase of an owner’s policy, so the additional premium for a standard owner’s policy is $115.00 and for an enhanced policy the additional premium is $194.00. An online title premium calculator form is available here https://www.caticulator.com/PremiumCalculator/Form?stateCode=CT
Unlike the loan policy, purchase of an owner’s policy is not required at closing. However, the purchase of an owner’s policy is strongly recommended in every real estate purchase. In my over twenty years of practicing real estate law, I have been involved with a number of title insurance claims. The owner’s policy protects what represents, for most people, the single largest purchase that they will make, and the payment amounts to a small amount of your total closing costs.