Title Insurance

In Park City sales transactions, the seller of a property is typically required to purchase title insurance to protect the buyer from potential title issues that could arise after the sale, such as missed liens during the title search. The title insurance company issues a title report and then provides an insurance policy based on the report's findings. Preliminary title searches are usually conducted once a property is listed for sale with a Park City Realtor. When the buyer and seller agree on the sale terms, a Title Report is almost always given to the buyer as part of the Seller's Property Disclosure Items. This gives the buyer a chance to learn about the property's title condition. The buyer should look for any "clouds" on the title.

A title search is also performed when an owner wants to mortgage or refinance the property, and the bank requires title insurance for the transaction. In a sale, the seller provides title insurance to protect the buyer, and the lender also requires the buyer to purchase additional title insurance, called a Lender's Policy, to cover the lender.

Below is an article explaining what Title Insurance is, the different types of policies, and why Title Insurance exists in the United States. This information aims to better inform you about Title Insurance; however, these are brief summary explanations for general informational purposes

For more specific information regarding Title Insurance and available policies, we recommend contacting the following companies located here in Park City:

Coalition Title
Craig Rodman
Escrow Officer
(435) 649-4008
2200 Park Avenue, Bldg. C-100
Park City, Utah 84060
craig@coalitiontitle.com

Real Advantage Title
Danette “Dani” Loehr
Branch Manager / Escrow Officer
(435) 731-8518 
1790 Bonanza Drive, Suite 250 
Park City, Utah 84060
dani@realadvantagenow.com

Title Insurance

Insurance against loss from defects in real property and from the invalidity or unenforceability of mortgage liens. It is available in many countries, but it is primarily a product developed and sold in the United States. It aims to protect an owner's or lender's financial interest in real property against loss caused by title defects, liens, or other issues. It will defend against a lawsuit challenging the title as insured or reimburse the insured for the actual monetary loss, up to the coverage amount specified in the policy.

Typically, the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease, or life estate. Just as lenders require fire insurance and other types of coverage to protect their investments, nearly all institutional lenders also require title insurance to safeguard their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance.

The following focuses on title insurance as issued in the United States.

Types of policies

Standardized title insurance forms are available for owners and lenders. The lender's policies include a specific form for construction loans, although it is rarely used today.

Owner's Policy
The owner's policy guarantees to a purchaser that the title to the property is vested in them and is free from all defects, liens, and encumbrances except those listed as exceptions in the policy or excluded from its coverage. It also covers losses and damages if the title is unmarketable. [2] The policy additionally provides coverage for loss if there is no right of access to the land. While these are the basic coverages, expanded forms of residential owner's policies are available that cover additional types of loss.

The liability limit of the owner's policy is usually equal to the purchase price of the property. Like other types of insurance, coverages can be added or removed with an endorsement. There are many standard endorsements available to address common issues. The premium for the policy may be paid by either the seller or the buyer, depending on what the parties agree upon; typically, local customs in a particular state or county influence this, and it is reflected in most local real estate contracts. Consumers should ask about the cost of title insurance before signing a real estate contract that requires them to pay title charges. A real estate attorney, broker, escrow officer (especially in western states), or loan officer can provide detailed information about the cost of the title search and insurance prior to signing the contract. Title insurance coverage remains in effect as long as the insured retains an interest in the insured land, and, usually, no additional premium is required after the policy is issued.

Lender's Policy
This is sometimes called a loan policy, and it is issued only to mortgage lenders. Generally, it follows the assignment of the mortgage loan, meaning that the policy benefits the purchaser of the loan if it is sold. For this reason, these policies greatly facilitate the sale of mortgages into the secondary market. That market consists of high-volume purchasers like Fannie Mae, the Federal Home Loan Mortgage Corporation, and private institutions.

The American Land Title Association ("ALTA") forms are widely used throughout the country, though they have been modified in some states. Generally, the basic insurance coverage they provide to the lender protects against losses from the following matters:

Of course, all of the policies exclude certain matters and are subject to various conditions.

There are also ALTA mortgage policies that cover single-family or one-to-four-family housing mortgages. These policies include the loss elements listed above, as well as others. Examples of additional coverages include loss from forged releases of the mortgage and loss caused by encroachments of improvements from adjacent land onto the mortgaged property, particularly when the improvements are built after the loan is issued.

Construction Loan Policy
In many states, separate policies exist for construction loans. Title insurance for construction loans requires a Date Down endorsement that recognizes that the insured amount for the property has increased due to construction funds vested in the property.

Why Title Insurance Exists in the United States

Title insurance exists in the US largely because of relative weaknesses in the country's land records laws. Most of the industrialized world uses land registration systems for transferring land titles or interests. In these systems, the government determines title ownership and encumbrances based on registered documents affecting the land, with its decisions generally being final. When errors occur, the government provides monetary compensation to those harmed, but the harmed party cannot usually recover the property itself.

A few US jurisdictions, such as Minneapolis, Minnesota, and Boston, Massachusetts, have adopted similar systems. However, most states rely on document recording systems where no official determines or guarantees who owns the land or whether transfer documents are valid. This approach is less costly because it doesn't require as many legally trained employees as land registration systems.

In simplified terms, whenever a land transaction occurs, the transfer instrument is recorded with a local government recorder—usually in the county where the land is located. The document is indexed by the names of the grantor and grantee, then photographed so anyone can locate and review it. Typically, if the grantee fails to record the transfer, it becomes invalid against future buyers who are unaware of its existence.

To determine ownership, one must examine the indexes at the recorder’s office, following rules set by state legislatures and courts, and analyze the documents to see how they affect the title under applicable law. Courts ultimately decide title disputes in lawsuits. Originally, a search was conducted by an abstractor, and then an attorney provided legal opinions; some places still do this. However, this method can be slow and inefficient. Errors by abstractors or attorneys are only compensable up to their insurance limits, and some errors, especially those due to negligence, may not be compensated at all. Legal opinions on titles vary and often require lengthy analysis.

Title insurers use this recording system to issue policies to land buyers, interest holders, or mortgage lenders upon receipt of the premium. These insurers or their agents conduct record searches and determine ownership and encumbrances. The policies are standardized, which is favored by lenders and the real estate industry. Insurers hold the financial reserves required by regulation to cover valid claims, which is crucial in major commercial transactions involving millions of dollars. Additionally, these policies cover costs of defending insured parties in legal disputes over title, a responsibility not borne by abstractors or attorneys.

Comparison with Other Insurance

Title insurance differs from other types of insurance in several ways. While most insurance involves a contract where the insurer compensates or guarantees another party against a specific future loss, such as an accident or death, title insurance typically protects against losses arising from title issues stemming from past events. This often leads to resolving title defects or removing adverse interests from the title before a transaction occurs. Title insurance companies do this by examining public records to trace the chain of title and identify known claims or defects. If liens or encumbrances are found, the insurer may require actions to remove them, such as obtaining a release of a paid-off mortgage or deed of trust, or they may exclude certain items from coverage. Sometimes, title plants are used to index public records geographically, increasing search efficiency and reducing claims.

The above explanation also highlights another difference: title insurance premiums are not primarily calculated using actuarial science, as is common with most other types of insurance. Instead of linking the likelihood of losses to their expected costs, title insurance aims to prevent losses through the use of the recording system and other underwriting practices. Consequently, only a small portion of premiums covers insured losses. Most of the premiums fund detailed research on individual properties and the upkeep of title plants for efficient searches. This approach offers significant social benefits and aligns with the expectations of most property buyers and mortgage lenders. Generally, they prefer the title condition to match their expectations at closing, rather than face money disputes and litigation over unexpected defects.

Land Title Associations

In the United States, the American Land Title Association (ALTA) is a national trade group for title insurers. ALTA has developed standard forms of title insurance policy "jackets" (standard terms and conditions) for Owner's, Lender's, and Construction Loan policies. These forms are used in most, but not all, U.S. states. ALTA also offers special endorsement forms for various policies; endorsements modify and usually expand the coverage provided under a basic title insurance policy. ALTA does not issue title insurance itself; it provides the policy forms that title insurers issue.