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GAZETTE

JAN/FEB 1993 '

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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