Enhanced Owner’s Title Insurance Policies: What Are They Good For?

People often ask me at continuing education classes or networking events what an enhanced owner’s title insurance policy is, when it is allowed to be used, and what additional coverage it offers to its purchasers. It must first be mentioned that each title insurance underwriter has different guidelines, coverages, and exceptions, so there is never an across the board answer to this question that will encompass every title underwriters’ policies. With that said, the example I am about to expound upon is adopted by six of the major ten underwriters here in Georgia, so if it is not an exact list based on who your closing attorney is writing your policy with, it will at least give you a good idea of some general benefits.

An enhanced policy provides additional title insurance coverage to a purchaser of residential real property.  The enhanced coverage includes title matters that are not within the scope of a standard owner’s policy.  The enhanced coverage for the owner creates a greater risk to a title underwriter so accordingly, a 20% increase in the premium over existing title insurance rates is charged for this policy, but the policy amount coverage increases by 10% per year for the first five years, so financially they make sense to purchase.

An enhanced policy may only be issued when the property to be insured is a one-to-four family property, or on improved residential subdivision lots or condominium units.. The title examination process and underwriting requirements are the same as for a standard policy.  The legal description must be adequate.  The borrower must own the property in fee simple. Any title defects that would raise issues of marketability must be cleared, and all improvements must have been completed and the property occupied as a residence. In addition, all taxes and special assessments due and payable must be paid at closing. 

While a survey of the property is not required, the street address shown in the tax records for the property must be the same as the street address for the property as shown in the lender’s documents. Exceptions or easements must be added when facts are disclosed which are contrary to the additional coverages provided for in the policy. Lastly, The seller or borrower must execute an owner’s affidavit with specific language identifying latent defect issues as well.

Enhanced policies can provide many benefits. This list contains those that pertain to an enhanced owner’s policy. Remember this is one underwriter’s example and does not mean that your policy has this coverage, so if you have a question as to whether your policy encompasses all of these, please make sure to ask your closing attorney.

An enhanced policy can insure that you have both legal pedestrian and vehicular access to and from the land. It might also insure against a loss arising from a mechanics’ lien claim arising prior to, or after the date of the policy unless the insured agreed to pay for the labor and material. This is particularly important for investors who are buying and rehabbing, or buying previously rehabbed homes. If a contractor does work on a house that your seller has not paid for by the closing date, and this does not come out during the closing process, there can be a lien put on the property that you now own and are responsible for even though you were not the party who contracted for the work. Your enhanced policy will cover the cost of this lien even if it filed after you bought the house. The only exception to this is if you agreed to pay for it yourself.

Additionally, an enhanced policy can cover the loss if you are forced to remove an existing structure other than a boundary wall or fence if it extends onto adjoining land or on to any easement, if it violates a restriction shown in the policy’s exceptions or an existing zoning law, or up to $25,000 if it was built without a required building permit,. It can also cover a loss if the land cannot be used as a single-family residence because its use violates a restriction or a zoning ordinance. In addition, extra benefits might include a loss due to prior violations of restrictive covenants shown in the exceptions, which result in a loss of title, a loss due to enforcement, or an inability to sell the land.

There are some post policy protections it offers as well. For instance, if someone else, after the policy date, builds a structure other than a boundary wall or fence, which encroaches on to the land, or there is structural damage from mineral extraction or exercise of water rights, the policy can cover those expenses. Additionally, it can cover post policy forgery by which another claims title or interest in the land. There are several other benefits that different underwriters’ policies might cover, but I wanted to make sure that I got some concrete examples out there for investors to see why the extra money is worthwhile. As I have mentioned, if you have any specific questions as to what your current or future policy covers, make sure you contact your closing attorney/title agent for specifics.

Attorney Craig M. Halperin is a Managing Partner and CFO of the law firm Halperin Lyman, LLC. In addition to his work with Halperin Lyman, Craig is also the Owner and CEO of CGC Real Estate Services, LLC, an Atlanta based investment company providing a full spectrum of real estate investment consulting services.