Among the many real estate issues confronted by buyers and sellers since the recession concerns the marketability of title to real estate. Events calling the marketability of real estate into question are often the result of failed real estate transactions, litigation, and foreclosures which occurred during the downturn and which have now created questions as to the ownership or encumbrances affecting title. This has led to additional exclusions in title insurance coverage, which may be making it tougher to get coverage for title defects. In the past, a title insurance policy was often a fairly uncontroversial document, and few people hired a lawyer to review the title commitment during a pending transaction. But as a result of increased litigation and failed real estate deals during the recession, we are seeing more exceptions in title insurance commitments. That adds risk for buyers, and may reduce the marketability of the property for sellers.
A title insurance commitment is the document issued by a title insurance company that shows what their coverage is – the protection an insured buyer gets for paying the title insurance premium. An exception in a title insurance commitment is a potential defect in the title to the property that the insurance carrier will NOT insure against. In other words, if after a real estate sale closes, a third party claims they own a piece of the property the buyer purportedly purchased, and the basis for the claim was included under an exception in the insurance commitment, then the insurance carrier will not defend the buyer’s title against the third party claim. Therefore, it is critical for a buyer to carefully review the title insurance commitment to make sure they understand the exceptions and what won’t be covered by insurance. For a seller, it’s important to know before a sale what problems might exist on the title to their property, so potential sales are not lost when the prospective purchaser reviews the title commitment.
So what happens if an exception is listed on you the title insurance commitment? This is yet another risk parties often face during a complex real estate transaction. Increasingly buyers are seeking help from experienced real estate attorneys to review the title commitment, to identify potentially gaps in title insurance coverage, and help negotiate to resolve or remove those exceptions prior to closing.
If you have questions about title insurance or the marketability of title to a piece of property, please contact David Closson, attorney and head of our Business Law Group, at [email protected].