Idaho Law Blog
By: T.J. Budge
Title insurance is a standard part of nearly all real estate transactions, yet relatively few buyers understand the purpose and limitations of the policy.
Title insurance policies insure against defects in the title to the property they are buying. The insurance company researches the public real estate records pertaining to the property and identifies the legal owner of the property as well as any problems with the title to the property, such as easements and liens. These problems are called “exceptions” because the title insurance company excludes or “excepts” them from coverage under the policy.
Before a property transaction closes, the title insurance company typically provides the buyer and lender with a title insurance “commitment.” A commitment is not actual title insurance, but a commitment to provide title insurance at closing. The commitment lists all of the exceptions that the insurance company will not cover. This is done before closing so the buyer has an opportunity to review the commitment and investigate the exceptions.
For example, an underground sewer line may run right down the middle of a parcel of land yet not be apparent from an on-site inspection of property, but it would be disclosed in the title insurance commitment as long as there is a recorded easement for it. If the buyer does not carefully review their title insurance commitment they may not learn of the sewer line until after they purchase the property, which may be too late.
A property drafted purchase agreement gives the buyer the right to terminate the deal if the title commitment contains exceptions that are unsatisfactory to the buyer. The buyer may also ask the seller to remove exceptions that the buyer finds unsatisfactory.
It is critical that buyers carefully review their title insurance commitment so that they are familiar with all of the easements, liens, and other exceptions to the title insurance. Most purchase agreements contain strict deadlines for raising objections to the title commitment, so careful attention is a must. Once the transaction closes, this opportunity has passed.
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