Title insurance is a key component in modern real-estate transactions. Yet the role of title insurance is frequently misunderstood.  The title company issues owner's title insurance policies which, subject to exclusions, exceptions and conditions, insure owners against loss or damage due to:

●    Title being vested other than as stated in the policy;

●    Defects, liens or encumbrances on title;

●    Unmarketability of title; and

●    Lack of access to and from the land.

It is the exceptions that cause concern.  Unless removed by the insurer, a owner's policy contains exceptions for:  (a) rights or claims of parties in possession not shown of record;  (b) encroachments, overlaps, boundary line disputes, shortages in area, and any other matters that would be disclosed by an accurate survey;  (c) easements or claims of easements not shown by the public records and existing water, mineral, oil, and exploration rights;  (d) any lien, or right to a lien, for services, labor, or material imposed by law and not shown by the public records;  (e) restrictions on the use of the premises not shown of record;  and  (f) dower or homestead rights, if any, of the wife of any individual insured or any individual shown to be a party in interest. These exceptions are known as "standard exceptions," which may be deleted by a title company upon receipt of affidavits, a survey, and any other items that the title insurer requires.

Tip #1:Always demand or obtain title insurance.

Nothing in the law requires title insurance.  However, the idea that a party can do without title insurance because of a low risk of claims is dangerous.  According to the American Land Title Association (ALTA), in 2005, over $748 million in claims was paid by title insurers in the U.S.

Tip #2:Obtain an expert to review the Title Commitment.

Title insurance companies do not necessarily search the entire chain of title in the public records.  Title companies rely on the Michigan Marketable Record Title Act.  More importantly, you may not understand the listed exceptions to the policy.

A survey is generally required to delete the standard exceptions.  For this reason alone, it is often wise to get a survey.  Moreover, title companies search records only for the property description provided by the customer.  If this description is incomplete, title to a portion of the property may not be searched without anyone realizing the omission.  When it comes to land, a picture is indeed worth a thousand words.

Tip #3:Get a survey.  Remove as many exceptions as you can.

A survey is generally required to delete the standard exceptions.  For this reason alone, it is often wise to get a survey.  Moreover, title companies search records only for the property description provided by the customer.  If this description is incomplete, title to a portion of the property may not be searched without anyone realizing the omission.  When it comes to land, a picture is indeed worth a thousand words.

Tip #4:Get a proper credit for your existing title work.

Most title companies charge a reduced premium for a prior policy, even if issued by a different insurer.  The rates for most, if not all, title insurers include a lower rate for policies issued based on a prior title policy, regardless of which insurer issued the prior policy.  Ask for a lower "reissue rate," even if a different insurer issued the prior title policy.

Tip #5:Get a marked commitment at closing.

Once a closing occurs, the title company sends documents to the register of deeds for recording.  Depending on the county, recording could take a few months. Thus, you should ask the title company to provide you with a marked title commitment at closing, where the title company marks its commitment with a pen to:

●  change the effective date of the commitment;

●  delete the word "proposed";

●  change the name of the owner from the seller to the buyer;

●  indicate that all requirements to the issuance of a policy have been met; and

●  delete any exceptions to coverage the insurer is willing and able to delete.

Tip #6:Pay proper attention to how you title the property.

Under the 1992 title insurance policy forms (in use before 2007), the definition of "insured" is the person named in the policy as an insured and anyone who succeeds to the interest of the named insured by operation of law, as distinguished from purchase.  Thus, the 1992 forms of title insurance policies do not continue to insure a grantor who transfers title by quit claim deed into a grantor trust (unless an  additional insured endorsement is purchased at that time), but do continue to insure an owner who transfers title into a trust by a warranty deed.

In 2006, ALTA promulgated new title insurance policy and endorsement forms. One of the changes in the new owner's policy is that the definition of "insured" includes a "grantee of an insured under a deed delivered without payment of actual valuable consideration conveying the title (1) if the stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named insured, (2) if the grantee wholly owns the insured, (3) if the grantee is wholly-owned by an affiliated entity of the named insured, provided the affiliated entity and the named insured are wholly-owned by the same person or entity, or (4) if the grantee is a trustee or beneficiary of a trust created by a written instrument established by the insured named in Schedule A for estate planning purposes."  Thus, under the new ALTA forms, the grantor in a number of conveyances will continue to be insured under its title insurance policy notwithstanding the form of deed used.

Tip #7:Take full advantage of available endorsements; many
are free.

Title insurance endorsements modify or extend insurance coverage provided under a title insurance policy.  Two of the more common endorsements include:

●    Comprehensive endorsement (sometimes referred to as an   "ALTA    9"), insuring against loss or damage resulting from (a) violations of building or use restrictions;  (b) exercise of rights to remove minerals; (c) encroachments;  (d) certain liens for private assessments;  and (e) certain options or rights of first refusal.
●    Zoning endorsement (10-15 percent of basic rate).  Issuance of these endorsements requires review of the zoning map and ordinance, and written confirmation from the municipality that there are no outstanding zoning violations.  If rezoning has resulted in the improvements on the subject property no longer being a conforming use, an endorsement may be obtained insuring that the structure is a permitted non-conforming use.  To do so, the title insurer will require written confirmation from the municipality that the use is lawful, based on a grandfather clause in the zoning ordinance.