Title Insurance and Conventional Insurance

Creditors and purchasers are protected from monetary loss due to flaws in an estate’s title through title insurance, a type of indemnification insurance. Borrower’s title insurance, which the debtor acquires to safeguard the lender, is the most typical sort of title insurance. Lenders and homebuyers are covered by title insurance from loss or harm brought on by bankruptcies, liabilities, or flaws in the ownership or title of a property. Unpaid taxes, liens (from mortgage loans, home equity lines of credit (HELOC), and restrictions), and opposing testamentary are frequent claims against a title (Hemphill, 2019). Title insurance defends against claims for events in the past, in contrast to conventional insurance, which covers forthcoming events.

Insurers’ title insurance and owner’s title insurance are the two varieties of title insurance, including extended policies. To safeguard themselves if the seller is unable to relinquish the title of entitlement, almost all lenders demand that the borrower acquires a lender’s title insurance policy. A lender’s policy only offers loss protection to the lender. An approved policy denotes the end of a title search and gives the buyer some certainty. There is a need for supplementary deals with the safety of an owner’s title insurance policy because title inquiries are not error-free, and the owner is still in danger of suffering financial loss. The owner’s title insurance is supplementary protection for the buyer against title flaws that the seller frequently purchases.

Ownership that is unaffected by any fear of litigation or probable cause is what is termed a marketable title. When a seller sells land to a buyer, an inherent guarantee in the transaction is that the seller will provide the buyer with a marketable title at the time of closing. A marketable title is one that a cautious, knowledgeable buyer in the ordinary line of operations would accept rather than one that assumes a perfect lack of defects (Hemphill, 2019). The preprinted language provided in an agreement or contract is the most comprehensive reference regarding title issues for real estate professionals. When there are financial liabilities, such as mortgages, on the property, the title is deemed unmarketable except if the purchaser rescinds them. If the purchaser acquired the land through hostile occupation or if it breaks any zoning restrictions, the title is therefore unsellable.

The defendant First American Title Insurance Company (First American), the provider of a title insurance policy on the townhome Ray and Denise Rhone bought in 2006, is the subject of a two-count complaint brought by the plaintiffs, Ray and Denise Rhone (the Rhones). Count II claimed special penalties because First American’s refusal of the Rhones’ request for a refund of those taxes was problematic at best and unjustified (Hemphill, 2019). Count, I requested a finding that the plan included unassessed property taxes for 2004 and 2005. The parties made cross-motions for a directed verdict.

First American argued that since the complainant imposed the taxes after the insurance was issued and were, in any case, expressly excluded by the policy, the coverage did not cover them. Judge Daniel A. Riley rejected the Rhones’ request while granting First Americans. The court maintained that until the defendant released the unassessed property tax bills in 2008, many years after the title insurance policy’s date of issuance of August 31, 2006, the unassessed taxes did not amount to liens or encumbrances. Therefore, to concur was the decision that the court reached.

Reference

Hemphill, T. A. (2019). The title insurance industry: Infusing innovation and competition. Business Economics, 54(3), 177–181.