What’s NOT Covered by Your Title Insurance Policy

Buying a home is likely one of the biggest decisions you’ll ever make, and investing in title insurance is a key part of the home-buying process. It provides a defense against claims that could affect your legal ownership of the property or cost a lot of money to rectify. 

While title insurance is extremely valuable, there are common misconceptions about exactly what it does and does not cover. As with any type of insurance, it’s crucial to understand what’s included and what the exceptions are so you can take steps to ward against financial loss and hassle.

Let’s take a closer look at how title insurance works, what might fall outside the scope of your policy, and other important elements to consider when purchasing real estate.

Protective Measures 

When you purchase a property, a title search is conducted to ensure that the title is free from any hidden defects or encumbrances. These could include liens, outstanding debts, or conflicting ownership claims that may arise from clerical errors, fraud, or even forgery.

A form of indemnity insurance, title insurance is your shield against these risks. It protects the homeowner from financial losses and legal battles that might surface if a title defect is discovered after the sale. With an affordable one-time premium that is paid at closing, it’s well worth the investment.

In today’s market, real estate-related crimes are on the rise, enabled by tech-savvy scammers intent on home title theft. Housing prices are on the rise and homeowner equity makes a tempting target. Check with your title insurance provider to be sure you’re covered. 

Rental properties, vacant land, and vacation homes are particularly vulnerable to this type of fraud since owners aren’t always there to spot suspicious activity. Here’s what you can do to go on the defensive against title theft and other property scams:

  • Purchase a comprehensive title insurance policy that includes a specific inclusion for theft or fraud
  • Visit unoccupied homes regularly or hire a property manager
  • Regularly check your mail and change your bills to electronic versions only
  • Monitor your credit report
  • Watch for discrepancies in utility bills or letters regarding lines of credit you didn’t apply for
  • Confirm all wire transfer instructions by speaking directly with a trusted agent in person or over the phone
  • Tighten your online data security

The professionals at Landtrust Title Services can help ensure you won’t be a victim.

Read the Fine Print

While this type of insurance is an essential safety net, it’s essential to know its limitations. Inexperienced buyers may confuse it with homeowner’s property insurance, but the two are vitally different. 

Title insurance usually excludes protection against environmental hazards or any incidents that lead to the deterioration of the property’s condition after closing. This can include soil contamination, groundwater pollution, pest infestation, or damage from mold

Another thing to be aware of is restrictive covenants, which are most common in condominiums, planned communities, townhomes, and subdivisions with a homeowners association (HOA). 

These are rules governing the appearance and use of your property, and covenant breaches can be punished with heavy fines, which are not covered by title insurance. This includes failing to pay dues, violations of HOA rules, special assessments charged to you as the owner, and other conflicts with the association.

It’s always smart to be on good terms with the people who live next to you, but boundary disputes occur all the time. If your neighbors start encroaching on your property, this can cause title issues further down the road when you’re ready to sell. An experienced real estate attorney can solve this problem quickly and efficiently — and you may want to commission a land survey to clarify property lines before you buy.

If you’re interested in buying a fixer-upper with hopes of renovating it for your family or flipping it for a profit, it’s critical that you get a comprehensive home inspection before your closing day to ensure the property is up to local building codes. Defects, repairs, or non-compliant work done by previous owners typically fall outside title insurance protections.

Your title insurance policy doesn’t protect you against problems caused by your actions, such as failing to pay your contractors or your property taxes. It also doesn’t include coverage for property taken via eminent domain.

The Bottom Line

A thorough title search by a trusted title company is imperative before closing any real estate deal. This process involves reviewing public records to identify potential title issues and encumbrances that may not be covered by title insurance. 

Partnering with an experienced title company can help you navigate the complexities of this process and avoid unwanted surprises. We can work with you to create an insurance policy that’s customized for your specific real estate needs.

Protect your most important investment with expert guidance from Landtrust — contact us today!

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