Choosing a Title Company: What about Exceptions?
Choosing a title company is a big decision. These are the people you entrust to perform your title search, and to issue your title insurance policy. A professional title company should be able to walk you through your property transaction, step-by-step, ensuring that you understand your coverage.
But what are you not covered for? The title company is also responsible for presenting the buyer with a title commitment: a document that discloses any exceptions and exclusions to the title insurance. This step occurs after the title search, but before title insurance is issued.
Also known as an insurance binder, this important document serves as the title company’s commitment to provide the buyer with insurance, and to protect the buyer’s interests. However, the binder also contains exceptions to the insurance – in other words, specific circumstances or restrictions for which the buyer is not covered, and the title company is not obliged to insure.
Standard Exceptions
Every title commitment comes with some standard exceptions. These typically include:
- Mineral and water rights
- Easements and liens not disclosed in public records
- Rights of parties in possession (the rights of tenants on the property with an unexpired lease)
While these exceptions are fairly consistent across the US, your state may have local standard easements too.
In some cases, these standard restrictions can be removed, resolved, or renegotiated during this process. For example, if the buyer does not want to accept an exception for undisclosed mechanic’s liens, the title company may remove it from the document. However, the title company is then liable to cover the buyer in the event that a lien exists against the property (but was not discovered during the title search). What’s more likely is that the buyer will take out an endorsement against specific kinds of liens – basically, an additional insurance provision that covers that particular scenario.
Specific Exceptions
These are restrictions that are specific to the property and its location, and can include:
- Disclosed liens against the property
- Encroachments or boundary issues
- Zoning or building restrictions
- Outstanding mortgage or tax payments
Typically, specific exceptions impact what the owner can do with their property. For example, there may be limitations on building another garage, or against keeping livestock on your property.
Again, like standard exceptions, there are specific restrictions that can be dealt with before the transaction. The buyer should insist, for example, that the seller pays their outstanding mortgage, taxes, or liens before closing.
In other instances, however, the buyer must decide if they can live with certain restrictions. If the buyer knows that there is a utility easement on part of the property, they cannot claim for damages in the event that the utility company needs to dig up that area.
Dealing with Exceptions
Upon reviewing the title commitment, the buyer can decide to go ahead with the transaction, or can try to negotiate and resolve certain terms. They can also decide not to buy the property if the exceptions conflict with their needs.
Choosing a professional, established title company is vital: they are responsible for uncovering as many issues as possible during the title search, which will be present as exceptions in the title commitment and eventually the insurance policy.
For more information about title insurance exceptions, contact Florida Home Title Company.