In this month’s article we will go over the “Policy Jacket” sections of the Title Commitment. For the purposes of this article we will use a Title Commitment issued by Chicago Title Agency, Inc. for reference. The first few pages of the Title Commitment, as well as the last few pages, are called the “Policy Jacket”. The policy jacket is where all of the legal terms are defined, the title insurance company’s rights and limitations are disclosed, as well as where the blanket exceptions are disclosed. Blanket exceptions are items that are not able to be insured with the type of policy being requested (without the addition of specific endorsement being added to the policy for an extra fee) and are not property specific. If you are looking for an exciting section of the title commitment that will get you excited about purchasing a property, this is not that section. To be honest, it would probably be a great cure for insomnia if you’re having trouble sleeping, unless you truly enjoy legal phrases and disclaimers. Please don’t let that stop you from reading through at least one policy jacket in your investing career. There is a ton of useful information in this section in regards to title insurance and everything you never knew about what it actually covers.
Title insurance is similar to other types of insurance in that there are different levels of coverage that can be issued, as well as additional endorsements (or riders), that can be added to expand the coverage. The difference between Title Insurance and other types of insurance, such as hazard insurance, car insurance or health insurance is that premiums (fees) on a Title Insurance policy are collected once for the entire time period that you own the property, whereas other types of insurance are collected on a monthly, semi-annual or annual basis.
The Policy Jacket will first cover the conditions under which the underwriter is willing to title insure the property. Chicago Title Agency Inc.’s title commitments are good for 180 days. What happens after 180 days? The commitment must be either converted to a title insurance policy prior to the 180 days, or a “bring to date” must be done on the title commitment. A “bring to date” is when title will re-examine the property to see if any new items have been added to the chain of title or any old items have been removed. Once the “bring to date” is complete the commitment date is then updated and the 180 day time clock starts over again.
Liability for the Title Commitment and the Title Policy lies solely with the Proposed Insured (or insured once the Title Policy is issued). What does that mean for you the investor? Transferring the property after close of escrow from your individual name to your LLC name could possibly void your owner’s title insurance policy. Check with your title insurance underwriter before transferring the property after close of escrow so see what is necessary to continue coverage.
Most Title Commitments issued in Arizona are ALTA Title Commitments. ALTA stands for American Land Title Association. What this means to you is that all of the forms contain the same standard exclusions or exceptions that have been reviewed and accepted by its participating members. The last few pages of the Title Commitment will show what is excluded from coverage and your liability and coverage amounts.
With all of the Exceptions and Exclusions you may be wondering what is covered. On a Standard Owner’s Title insurance policy (which is the typical policy purchased by investors) there are 6 items that are covered:
* 1. Someone else owns recorded interest in your title.
2. A document is not property signed, sealed, acknowledged, or delivered.
3. Forgery, fraud, duress, incompetency, incapacity, or impersonation.
4. Defective recording of any document.
5. Unmarketability of title
6. Lack of a right of access to and from the land.
Special note – Access to and from the land is not always possible on a land locked parcel, in certain situations access can also be moved to the exceptions to the Owner’s Title Insurance Policy.
For assistance understanding the legal impact of exemptions and exceptions to your Owner’s Title Insurance Policy please contact your Real Estate Attorney to discuss each situation. If you do not have a Real Estate Attorney AZREIA can provide you with a list of investor friendly Real Estate Attorneys in Arizona or stop by one of the Real Estate Attorney vendor booths at the next AZREIA meeting.
Next month we will cover a little more in detail the “Schedule A” section of the Title Commitment and define more of the terms used to dissect this section. Should you have any questions please do not hesitate to reach out to us!
*Please note that the above coverages are subject to the specific exceptions to Title, Exclusions and the Conditions and Stipulations as set forth in each policy form. Special conditions and deductibles apply for certain coverages in the ALTA Homeowner’s policy. Policy coverage is subject to change without notice, except as required by the Arizona Department of Insurance.
by Jill Bright AVP/Sr. Sales Executive