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to the method used in title
registration). Most Recorders'
offices, on the other hand, use
alphabetical name indices which
require an examination of a grantor-
grantee index, among others, to
determine what instruments affect
the title to a given piece of property.
The trace index affords a more
convenient and rapid examination of
title documents and this method is
generally regarded as being far
superior to that of the Recorders'
offices.
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On completion of the title
search a non-binding "preliminary
report" is delivered to the proposed
insured prior to the conclusion of
the real property transaction.
The preliminary report includes a list
of matters purporting to affect title
which the title insurer declines to
provide coverage against loss if and
when a policy is issued. Matters
listed are said to be "excepted" from
coverage. The preliminary report
differs from an abstract of title
because it does not presume to list
every matter of record relating to the
subject property. A title insurer is
potentially liable under a title
insurance policy for losses suffered
by reason of any matter affecting
title not specifically excepted from
coverage (or otherwise excluded
pursuant to standard exclusionary
provisions). An abstract preparer, on
the other hand, is potentially liable
for losses suffered by reason of any
matter affecting title not specifically
included in the abstract.
Title insurance policies are issued
upon payment of a one-time
premium and are effective for as
long as the insured has an interest in
the subject property. The premium
for an owner's policy is normally
based on the value of the property
(i.e., the purchase price in the case
of a sale), or the loan amount where
the policy insures the priority of the
lender's mortgage, and is calculated
at a fixed amount for each $1,000
insured. Most states regulate to a
greater or lesser extent the rates that
title insurance companies can charge.
Title insurance is available to
freehold owners as well as to those
holding other interests, such as
lessees, optionees and mortgagees. A
standard owner's policy insures
against: a) title to the estate or
interest described being vested other
than as stated; b) any defect in or
lien or incumbrance on the title not
otherwise excepted from coverage; c)
lack of legal access to and from the
property; and d) legal (as opposed to
economic) unmarketability of the
title. A lender's (or so-called
"loan") policy additionally insures
the validity, enforceability and
priority of the lender's mortgage.
The title insurance policy obligates
the title insurer, subject to the policy
terms, to pay for the defence of all
claims, with or without merit, which
purport to defeat the insured
interest. Title insurers also offer so
called "extended coverage" policies
for a higher premium which can
provide wider protection against loss
should the circumstances so require.
c)
Title insurers' assumption of
risk.
If, as might appear at first
glance, a title company can
effectively reduce its exposure to
claims by carefully and competently
examining the relevant title records
and refusing to cover any adverse
matter which is discovered, what is
the benefit of a title insurance policy
to a property owner or a
mortgagee?
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The answer partly lies
in the fact that a title insurer will
assume some risk. The title policy
insures against loss arising from
certain kinds of "off-record" risks
or "hidden defects" which cannot
be discovered by a thorough and
accurate search of the title records
such as, for example, the forgery of
a document in the chain of title, the
non-delivery of a conveyance or the
misfiling or incorrect indexing by the
Recorder. A title insurance company
may also be willing to "insure
around" (i.e. delete as an exception
to coverage) a known title defect
under certain conditions. This might
occur if, for example, the risk of a
claim is deemed to be extremely
remote or a satisfactory indemnity is
obtained from an appropriate party
indemnifying the title insurer for any
losses it may suffer for insuring
around the known defect.
As a practical matter, the preliminary
report serves to identify problem
areas and risks which can often be
eliminated prior to the completion of
a transaction and, thus, not assumed
by the proposed insured. What can
be deleted as an exception to
coverage is subject to negotiation
with the title company. Coverage
issues are handled by underwriters,
sometimes aided by in-house lawyers,
who make the final decisions
affecting risk and potential liability.
Of course, the title company may be
unwilling to assume the risk of
deleting an exception to coverage
which appears in the preliminary
report and, if the proposed insured
cannot independently resolve the
matter with the seller or holder of
the adverse interest, the transaction
may fail (and no title insurance is
purchased). Title insurance companies
in the United States are very much
involved in assisting purchasers and
lenders in dealing with title matters
and routinely suggest ways of deleting
exceptions to coverage. In this regard
title companies have been called the
"sole arbitrators of title questions"
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and the "supreme court on titles to
real property."
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d) Limitations of title insurance.
It
is important to remember that title
insurance does not guarantee the title
of a particular piece of real property
and likewise cannot be equated with
evidence of title. For instance, a title
insurer could choose not to conduct
a search of the public records prior
to issuing an owner's title policy to a
purchaser (in most states there is no
legal requirement that a title insurer
must do so) and thereby, in effect,
assume the risk of failure of title.
Should that risk materialise, and
litigation to establish good title is
ruled out or is unsuccessful, the
purchaser would be indemnified for
the monetary loss incurred (up to the
stated maximum in the policy) but
lose the interest mistakenly believed
to be his. However, title insurers
usually do not take this high-risk
approach to their business as
undertaking this practice would
"remove the basis for curative
action, and as titles become more
uncertain, losses would increase and
insurance rates would go up."
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