It is important for a buyer of real estate to understand title insurance. And I think there are some misunderstandings about the nature of title insurance and what it really is… Actually what I’m going to say applies equally to a sophisticated commercial transaction or to a residential real estate transaction that’s a rather modest amount of money. But with some people who buy real estate who are not real estate professionals themselves, are not experienced in real estate, there are some misunderstandings and I think it’d be good to clear them up.
For instance, I often see people come in on a closing for buying a home, or maybe buying a small parcel of property to put a business on or something, and if it’s in a title company, the title company will slide the title insurance commitment across the table to them, and say, “Here’s your title insurance!” And the buyer of the property says, “Oh great, I have title insurance so we’re good to go!” And that’s a huge mistake.
Because title insurance is a little different, in some ways similar but a little different, to other types of insurance. Most insurance that you get for health, for property, for casualty, you know, fire, wind storm, and those kinds of things… and your auto insurance—they have exclusions in them! And most people don’t understand those exclusions and when something happens that is excluded from the insurance coverage, it’s a rude awakening for them. So it’s important to understand the exclusions. And the same thing is true with title insurance. Just because a title insurance company or, in fact, your own lawyer, gives you a title insurance policy—or “commitment,” and I’ll explain the difference to that—doesn’t mean that everything’s well with title because, what title insurance does, is ensures that you have good title to the property that you’re buying, but there’s what’s called a “Schedule B-2,” and on Schedule B-2 are all the exceptions to title.
So when you get that title insurance and let’s say you’re buying a home for $300,000 or you’re buying a business for a million dollars, or you’re buying a shopping center for ten million dollars, you get that title insurance policy—or commitment—and you look at it and it’ll have Schedule B-2, which are all the exceptions. Which means that the title company is saying, “You have good title and we will insure you for up to $300,000 to correct and fix any title problems you have, except for…” and then there’ll be a list! And that list is sometimes five or six things, and I’ve seen it be as long as fifty! And on that list are going to be things like restrictive covenants that encumber the property, easements across the property, access problems getting to the property. And the title insurance companies (and I say this in kind of a collective way) are not very good about taking the time to explain those exceptions to you! They just say, “Well here’s your title insurance!” And you say, “Oh great, I’m good to go!” But unless somebody takes the time and explains to you all those title exceptions are that not covered, you’re getting a title insurance policy that may not be really be of much value to you if some of those exceptions are exceptions that will interfere with the way you want to use the property.
Classic example is, you get your title policy; you think you’re good to go. One day you see a truck driving across the back part of your property. And you say, “Wait a minute! He can’t do that!” You go out to the guy and you say, “Stop driving across my property!” and he says, “No, I’ve got the right to, I have an easement across your property.” You march in the house and you say, “I’ve got title insurance! I’m going to call my title insurance company and they’re going to have to compensate me for this loss!” Title insurance company pulls out the title insurance policy and says, “See here on Schedule B-2? Says ‘Subject to easement in favor of trucking company.’ You’re not covered.”
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Just because a title insurance company or, in fact, your own lawyer, gives you a title insurance policy—or “commitment,” and I’ll explain the difference to that—doesn’t mean that everything’s well with title…
And the great majority of people who get title insurance just have this mindset that, “Oh my real estate broker, or my title company says I have title insurance I’m good to go.”
Well it’s a huge mistake to not have an attorney or somebody knowledgeable in title to go through those B-2 exceptions and tell you what your policy is subject to, and without that you could be making a serious mistake when you buy real estate.
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– Rulon D. Munns is an experienced real estate attorney and managing shareholder of Bogin, Munns & Munns, a full service law firm with offices in Orlando, Clermont, Kissimmee, Orange City, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida. He welcomes questions and comments regarding the above and can be reached at rulon@boginmunns.com.
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