My first job after college in the early 80s was working at Security Title in Sidney, MT. This entry-level job included hand “posting” all the new transactions, i.e. deeds, mortgages, and leases, in our tract indexes and “proofing” with my supervisor.  She would give me a legal description, and I would read her my weekly post for accuracy.  The time-consuming and precise process of take-down, posting, and proofing hundreds of transactions consumed 3 to 4 days of each work week.  This fond memory was during the previous oil and gas boom in eastern Montana when my handwriting was much better than it is today.    

In preparation for this article, I interviewed Brad Stratton of American Land Title. ALTC is celebrating its 41st year in the title business. Brad and his wife Jinny, the current owners, have been with the firm since 1972. When American Land Title was started, every single transaction that had ever occurred in Gallatin County was photocopied to build their physical title plant. From 1970 to 2000, the Gallatin County Clerk and Recorder used microfilm to preserve transactions and provide title companies with weekly updates. In 2000, Gallatin County entered the digital world and now a daily zip disk is available for all updates. 
 
Title insurance gets very little lip service but is such an important aspect of a real estate transaction. Unfortunately, many people just view it as another fee at closing that is coming out of their pockets unnecessarily. The truth, however, is that title insurance is essential to protecting home buyers’ single largest investment. On any given property, ownership may have changed numerous times via sale, foreclosure, inheritance, etc., and each of these transfers gives an opportunity for a mistake to put the property’s true ownership at risk. Title insurance allows homeowners to feel confident that they can live in and use their property as they see fit, they are free from debts against the property not created by them, and they can sell the property free and clear when the time comes. Unlike auto, medical, or homeowner’s insurance which is paid on a monthly or annual basis, title insurance is a one-time premium that keeps the policy in place for the length of possession.

Both lender’s policies and owner’s policies exist. The lender's policy covers only the amount of the loan, which is usually not the full property value. The owner’s policy, in addition to providing a valuable service, is required by lenders since they want to make certain the money they are providing is purchasing a property that is free and clear of title defects.

With the absence of real live “human” sellers in the bank-owned marketplace, there is an increased interest in more comprehensive coverage in today’s environment.  In a true arms-length transaction, a seller is required to disclose any known material defect about the property. For example, does the garden encroach on the neighbor’s lot, or does the road on which you traveled to the house provide its legal access? With a bank-owned property, the bank seller has never occupied the property, let alone even seen it. Most REO sales addendums have many pages of disclaimers to that effect. In this day of increasing foreclosure sales, there are a growing number of titles that are “clouded” (meaning an irregularity, possible claim, or encumbrance which, if valid, would adversely affect or impair the title) due to poor documentation. 

There is a way to protect against many of the “undisclosed” issues. Title companies generally offer two or three different levels of coverage. Though terminology varies somewhat from company to company, there are standard, enhanced/ extended, and comprehensive/ “eagle” policies.  The cost difference between the standard and enhanced coverage is quite nominal for the increase in coverage and peace of mind.  It is generally a 10% percent increase in expense. The cost of standard title insurance coverage, normally provided by the seller, is $973.00 for a $275,000 purchase. So for an additional $100, a buyer can purchase quite a bit more “peace of mind”. 

To highlight some of the differences between the types of policies, a standard policy covers:
• any defect in title existing at the time of purchase
• prior recorded (but not disclosed) mortgages, judgments, and other liens
• prior recorded (but not disclosed) easement or use restrictions
• forgery, fraud, duress
• title vested in someone other than the seller
• unmarketability of title
• right of legal access

An enhanced/extended policy adds:
• incorrect survey
• off-record matters, such as claims for adverse possession or prescriptive easement
• pre-existing violations of subdivision laws, zoning ordinances of CC&R’s
• silent liens such as mechanics or estate tax liens
• coverage for encroachments, conflicts in boundary lines

A comprehensive/ “eagle” policy further includes:
• post-policy forgery
• forced removal of improvements due to lack of building permit
• post-policy encroachment
• location and dimensions of insured land
• post-policy automatic increase in value up to 150%

Please note that these are a summary of general guidelines and levels of coverage will vary from company to company. Under the Real Estate Settlement Procedures Act (RESPA), a federal law, consumers are allowed to research and choose their settlement service provider (title company) if they are the party who is paying for the service. It is important to understand the details. Do not expect Fannie Mae, Freddie Mac, or Bank of America to pay for the upgraded premium, they will not. Ask your real estate professional to introduce you to a title examiner early in the purchasing process so you can make an informed decision on which coverage is best for your purchase.