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Anatomy of a Title Policy

Anatomy of a Title Policy

Understanding title insurance is an important step in purchasing new property

When you purchase title insurance for your new property, title insurance policy coverage paperwork may seem confusing, not to mention what it covers and doesn’t. Yet understanding your title policy is important; it protects your investment in your new purchase and ensures you’ll be able to enjoy it as you wish for as long as you want.

So let’s demystify a few things about your title policy with a closer look at its anatomy, so you can get a clearer picture of what’s involved.

 

The preliminary title report

Most title reports are consistently presented in three sections, typically labeled as schedule a, b and c. An American Land Title Association (ALTA) Commitment for Title Insurance consists of schedule a and schedule b in two parts. Here are the components of a title policy that you will find within those schedules.

 

Schedule A

  • Commitment date.
  • Proposed insured and the policy amount.
  • How title will be held (fee simple, leasehold, etc.).
  • In whom the title will be vested.
  • Legal description of the property.

Schedule B, Part I

  • Requirements that must be met for coverage to apply. For example:
    • Notification to the company of anyone not listed in the commitment who will obtain any interest in the property or make a loan on the property. At that point, the company may specify additional requirements or exceptions.
    • Payment for the agreed upon purchase price for the property to be insured.
    • Payment of the premium, fees and charges for the policy.
    • Documents conveying the title or creating the mortgage to be insured must be properly authorized, executed, delivered and recorded in the public records.

Schedule B, Part II

  • Exceptions to coverage.

In addition, general notes may be included which may have an effect once a change in ownership takes place. These items could include name changes, non-encumbering liens, no-discrimination clauses and more.

 

Title search findings can be complex

This offers a basic overview of what you may find in a preliminary title report and title policy. Remember, title searches can uncover any number of complicated issues, issues which can have serious implications on your ability to take full ownership of the property. If a title search into a property you intend to buy uncovers some serious red flags, you may want to consider consulting with your attorney as well as your title insurance company to determine next steps.

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