●What is title insurance?
Title insurance protects homeowners from unforeseen or unknown events or circumstances that adversely effect their title or their beneficial use and enjoyment of their property. The title industry offers two coverage levels: standard and enhanced.
The standard policy covers claims that arise from events that existed at the time you bought your home. These events can include forged documents and documents signed by persons posing as another or who lack the mental competency, capacity or legal authority to sign. These standard policies also cover you if claims are made by persons who should have joined in a deed but did not, such as co-owners, heirs, spouses, corporate officers or business partners. Typical claims covered under the standard policy arise from undisclosed (but recorded) prior mortgages or liens; undisclosed (but recorded) easements or use restrictions; erroneous or inadequate legal descriptions; lack of a right of access; and deeds not properly recorded.
An enhanced policy may be bought at the time you settle on your purchase. This policy is referred to as a “homeowner’s” title policy. It protects you from additional title defects that were not readily seen by reviewing the recorded documents, such as claims for adverse possession or prescriptive easements; subsequent encroachments by neighbors; incorrect surveys; and silent liens, such as mechanics’ or estate tax liens.
One particularly valuable feature provided in these enhanced policies is that they cover post-policy events. Enhanced policies also contain inflation protection. Generally, the coverage will increase 10 percent per year for the first five years so that you have coverage for 150 percent of the purchase price.
Before a title insurance company will issue any title policy, it conducts an extensive title search of the property. In the Washington area, a full title search typically examines the title going back 60 years. In addition to the land records, court judgments, bankruptcies, divorces, probate, tax sale, water and sewer bills are also searched. A current survey is also obtained and examined to determine whether there are any issues, such as encroachments, that would impact the title to or beneficial use of the property. In Maryland and the District, title insurance rates are filed by the insurance underwriters with the insurance commission, and all agents of that underwriter are required to charge only the filed rates.
●How can I save money by seeking a “reissue” or “substitute rate?”
Ask your settlement attorney whether you are eligible for a “reissue rate.” To be eligible, you will need to prove that the home’s title has been insured within the previous 10 years. Ask your sellers how long ago they bought the home. If it’s 10 years or less, ask whether they purchased owner’s title insurance when they bought. If so, ask them for a copy of their owner’s policy and deliver it to your settlement attorney.