Title Insurance Policies Protect Land Owners

$680 Florida vacation home is built on wrong lot. How title insurance can protect the home owner.

Title Insurance Policies Protect Land Owners

USA Today recently wrote an article about a $680,000 vacation home that was built on the wrong lot. As a real estate attorney, home buyers will occasionally scoff at the thought that a home could actually be built on the wrong property. But as this case illustrates, it does happen. How does a property buyer get protection from these errors?  The answer is not only buying an owner’s title insurance policy at closing, but getting the correct type of insurance product. 

Standard (“long form”) owner’s title insurance policies insure ownership of property as the property is described in the deed from the seller to the buyer. Generally these policies do not insure the improvements on the property unless a current survey is performed by a registered land surveyor prior to closing. Naturally, if the survey discloses a defect, the policy will exclude coverage for disclosed matters, but a buyer could refuse to close until the seller resolved the defect.

“Enhanced” policies were designed to provide survey type coverage without the necessity of having a new survey performed.  In return for a slightly higher premium, home buyers can get coverage for the main dwelling structure without the additional expense for a survey.  For this reason they are the most popular title policies.  The main drawbacks to enhanced policies include not having the benefits that a survey would provide, such as being able to see a depiction of the property with improvements. Also, these policies typically contain deductibles and limits for improvements other than the main dwelling structures such as walls, fences, detached garages and swimming pools. Note that this type of policy is not available to all property or transaction types, either.

The USA Today article described a construction issue, so how can property owners who build homes on their own land get protection? To obtain optimal title insurance coverage involving a new build, an owner’s title insurance may be purchased with a policy limit based on the final, improved value. Coverage increases under a pending improvements clause as the home is constructed. This type of coverage is issued with a standard owner’s title insurance policy and a current land survey.  

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Reference to USA Today article:  http://www.usatoday.com/story/news/nation-now/2014/10/15/vacation-house-built-on-wrong-lot/17293689/ 

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