Title Exception
In the realm of real estate transactions, a title exception is a clause within a title insurance policy that specifies certain items or conditions that the insurance does not cover. These could be existing issues with the property that the insurer will not be liable for in the event of a claim. Understanding these exceptions is critical for both buyers and sellers, as they can significantly impact the risk associated with the transaction.
Examples of Title Exceptions
- Easements: These are rights for others to use parts of your property, which can complicate ownership rights. For instance, easements allowing utility companies to run pipes or cables across the property.
- Restrictive Covenants: Rules that govern how a property can be used, such as architectural guidelines or use restrictions set by former owners or a homeowners’ association.
- Unrecorded Liens: Liens that have not been formally recorded in public records, such as unpaid contractor debts or pending legal judgments.
- Boundary Disputes: Claims related to the boundaries of the property, which can involve encroachments or disagreements with neighboring properties.
Frequently Asked Questions
Q: What should I do if a title exception identifies a high risk?
A: If a title exception indicates a high risk, it is advisable to consult with your real estate agent or a real estate attorney to fully understand the implications. They may advise you to renegotiate the terms of the purchase or to walk away from the deal.
Q: Can title exceptions be negotiated out of a title insurance policy?
A: Not all title exceptions can be removed. Some are standard exclusions inherent to the property or jurisdiction. However, negotiating with the seller to resolve certain issues before purchase may be possible.
Q: Are title exceptions standard in all title insurance policies?
A: Yes, most title insurance policies will have some exceptions, but the specifics can vary significantly between properties and insurance companies. It’s essential to review them carefully for each transaction.
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Title Insurance: A form of indemnity insurance that protects property buyers and mortgage lenders against defects or issues with the property’s title.
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Escrow: A neutral third-party account where funds or assets are held until all conditions of a transaction are met.
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Lien: A legal right granted over property to secure the payment of a debt or obligation.
Online Resources
References
- “Real Estate Law” by Marianne M. Jennings
- “Property: Principles and Policies” by Barlow Burke and Joseph Snoe
Suggested Books for Further Study
- “Title Insurance: A Comprehensive Overview” by James L. Gosdin
- “The Essentials of Real Estate Law” by Lynn T. Slossberg
- “Principles of Real Estate Practice” by Stephen Mettling and David Cusic
Real Estate Basics: Title Exception Fundamentals Quiz
### What is a title exception in a title insurance policy?
- [ ] A guarantee against all future claims.
- [x] A statement of an item not covered by the insurance.
- [ ] A list of previous owners of the property.
- [ ] An appraisal value of the property.
> **Explanation:** A title exception refers to an item or condition stated in the title insurance policy that is not covered by the insurance.
### Are easements commonly included in title exceptions?
- [x] Yes, easements are often listed in title exceptions.
- [ ] No, easements are always covered by title insurance.
- [ ] Only temporary easements are included.
- [ ] Only residential easements are included.
> **Explanation:** Easements are commonly included in title exceptions because they involve rights granted to others to use parts of the property.
### Can a buyer negotiate the removal of certain title exceptions?
- [x] Sometimes, depending on the exception and negotiation with the seller.
- [ ] No, title exceptions are non-negotiable.
- [ ] Yes, all exceptions can be removed if demanded.
- [ ] Only legal exceptions can be negotiated.
> **Explanation:** Some title exceptions can be negotiated, especially if rectifiable by the seller before purchase, but not all can be removed.
### Who should review title exceptions for a potential property purchase?
- [ ] Only the seller.
- [ ] Only the real estate agent.
- [x] Both the buyer and a real estate attorney.
- [ ] Only the mortgage lender.
> **Explanation:** Both the buyer and a real estate attorney should carefully review title exceptions to understand any risks involved in the property purchase.
### What kind of issues may title exceptions highlight?
- [x] Unrecorded liens, easements, and boundary disputes.
- [ ] Only issues with the interior of the property.
- [ ] Recent property taxes.
- [ ] Personal preferences of previous owners.
> **Explanation:** Title exceptions may highlight unrecorded liens, easements, boundary disputes, and other issues that could affect property ownership.
### Are title exceptions standard in all title insurance policies?
- [x] Yes, although the specifics can vary.
- [ ] No, only in commercial properties.
- [ ] Only if requested by the buyer.
- [ ] Yes, but they exclude residential properties.
> **Explanation:** Title exceptions are standard in most title insurance policies; however, the specifics of the exceptions can vary between policies.
### What steps can a buyer take if a title exception poses significant risk?
- [ ] Ignore the exception and proceed with the purchase.
- [ ] Refuse to buy the property without negotiation.
- [ ] Demand higher mortgage from the lender.
- [x] Consult with a real estate attorney for advice.
> **Explanation:** If a title exception poses significant risk, the buyer should consult with a real estate attorney who can provide advice or suggest further actions.
### How can title insurance benefit a property buyer despite exceptions?
- [x] It can protect against undisclosed defects in the title.
- [ ] It guarantees a fixed property value.
- [ ] It ensures immediate property appreciation.
- [ ] It covers all possible property damages.
> **Explanation:** Title insurance can protect against undisclosed defects in the title, even though it may have certain exceptions that must be individually considered by the buyer.
### What is a common type of restriction found in title exceptions?
- [x] Restrictive covenants.
- [ ] Safety codes.
- [ ] Market value assessments.
- [ ] Paint color restrictions.
> **Explanation:** Common types of restrictions found in title exceptions are restrictive covenants, which can include rules about how the property can be used.
### Who can best address concerns about title exceptions?
- [ ] A loan officer.
- [ ] A home inspector.
- [ ] The seller's agent.
- [x] A real estate attorney.
> **Explanation:** Concerns regarding title exceptions are best addressed by a real estate attorney who can provide legal advice and help the buyer understand the implications.
