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Do I have to pay…Again???

by Denise S Nakanishi, R 

Quite frequently, I am asked why title insurance premiums must be paid over and over. Good question. Title policies extend coverage through the seller’s ownership period. Even if for only one day, each time title changes, a new policy must be issued or technically a break in coverage exists. Title insurance premiums are based on sales price. In Hawaii, the seller normally pays 60%, the buyer 40%. With a sale, title insurance is the insurance carrier’s guarantee that the seller has clear title. In general, common title problems such as breaks in the ownership chain (watch for the word “exceptions” in Schedule A), child support liens, and legal access tax liens, failure to properly obtain a release of mortgage, and the like are cleared before transfer. Title policies come in basically two varieties; lender’s policies and owner’s policies. The amount of coverage afforded a lender reduces as the mortgage balance declines. Therefore, a lender’s policy is less expensive. Owners’ policies cover problems which may not be discovered for generations. Most title policy claims stem from access problems. Correctly recording access is a common problem especially when new subdivisions are formed. For example, at least one local farm community conveyed the bulk of their properties without reserving access for the remaining parcels. Had conveyance on a remaining parcel occurred prior to resolution of the problem, the title insurer would likely be on the hook. Also common is historical access that has never been formally acknowledged and included in the deed. Such problems don’t usually come to light until an ownership change occurs, often in a neighboring property. Interestingly, I reviewed a deed the other day and noted that access is via a government road that has never existed. It’s entirely possible for a property to have legal access without having physical access. Title insurance covers only legal access. This makes perfect sense. It’s impossible for a title searcher to determine if actual physical access exists. Other types of covered claims include claims arising as a result of forged deeds, incompetence of the grantor, questionable notary acknowledgements or questionable conveyance authority. Title policies do not normally cover issues related to encroachments, boundary disputes, unrecorded liens or zoning violations. Remember, while sellers benefit indirectly, title policies actually cover the new owner. Unlike other forms of insurance, title insurance is a one time charge. When you think of it like that, the cost seems relatively inexpensive. Of course, it’s understandable that someone would complain about paying over and over for something they’ll probably never get to use. Guess that’s why Miles told me to stop buying those size 2 jeans. I probably never need them, but they’re in my closet…just in case!