Your Guide to Understanding Title Insurance Exceptions

Understanding Title Insurance Exceptions

Every title insurance policy will include exceptions. These are a standard part of every title insurance policy, and understanding them is key to knowing what your policy covers.

Title insurance exceptions are specific items or issues listed in a title insurance policy that are not covered by the insurance. You'll find these exceptions listed in Schedule B-2 of your title commitment. Their purpose is twofold: they define the scope of your coverage and inform you about potential characteristics of the property.

Understanding how these exceptions affect your title insurance coverage is straightforward. Essentially, they outline the specific scenarios or issues that your policy won't cover. For example, a policy might not cover issues arising from easements that are visible by inspecting the property. This doesn't mean there's a problem with easements on the property; it simply clarifies what the policy does and doesn't cover.

It's important to note that the presence of exceptions in your policy doesn't necessarily indicate problems with the property. Standard exceptions exist for every title insurance policy while special exceptions are particular to an individual piece of property.

Standard Title Insurance Exceptions

When reviewing your title insurance policy, you'll notice a set of standard exceptions. These are common exclusions found in all title insurance policies and are typically pre-printed on the policy form. They exist to address situations that are either outside the scope of public records or are impractical for title companies to verify for each property.

Here are the most common standard exceptions you're likely to encounter:

• Rights or claims of parties in possession not shown by public records: This could include renters or adverse possessors. For instance, if there's an unrecorded lease agreement, the policy wouldn't cover related issues.
• Easements not shown by public records: These might include implied easements or those established by long-term use. An example could be a shared driveway used by neighbors for years without formal documentation.
  
• Encroachments, overlaps, and boundary line disputes: This exception covers issues like a fence built slightly over a property line or discrepancies in property boundaries that would have been revealed by a property survey.
• Mechanics' liens: These are potential claims against the property by contractors who have performed work but haven't been paid. This exception protects the insurer from liens filed after the policy date.
  
• Taxes or special assessments not shown as existing liens: This typically refers to future tax bills or recently approved special assessments that haven't yet been recorded.
  

Remember, standard exceptions apply to every title insurance policy. However, policy owners should be aware that they exist to fully understand their title insurance coverage.

Special Title Insurance Exceptions

In addition to standard exceptions, your title insurance policy may include special exceptions unique to your property. These are listed after the standard exceptions in Schedule B-2 of the title commitment form.

Some common special exceptions you might encounter include:

• Utility Easements: These give utility companies the right to access your property for maintenance or installation of services. While they rarely affect day-to-day life, they might limit where you can build structures or plant trees.
• Mineral Rights Reservations: In Alabama, it's not uncommon for mineral rights to be severed from surface rights. This means someone else may have the right to extract minerals from beneath your property. While it doesn't typically affect residential use, it's important to be aware of this possibility.
  
• HOA Restrictions: If your property is part of a Homeowners Association, there may be rules about property use, appearance, or modifications. These could range from paint color choices to restrictions on short-term rentals.
  
• Zoning Ordinances: These local laws regulate how property can be used in specific areas. They might affect your ability to run a business from home or make certain types of improvements to your property.
  
• Floodplain Designations: If your property is in a designated floodplain, this will be noted as an exception. It may impact your insurance requirements and any future construction plans.

These special exceptions aren’t necessarily problems, but rather characteristics of the property that are not covered by title insurance. However, these exceptions may impact a homeowner’s use or property value, so it’s important to review these exceptions prior to closing.

The Impact of Exceptions on Homeowners

Special exceptions may impose certain limitations on your property. For instance, utility easements might restrict where you can build new structures, while HOA rules could limit exterior modifications. In some cases, these restrictions might impact your renovation plans or how you use your property.

There can also be financial considerations. A floodplain designation might necessitate additional insurance, while certain zoning exceptions could affect your ability to use the property for specific purposes, potentially influencing its market value.

It's important to note that some exceptions, like mineral rights reservations, may raise legal questions about subsurface property rights. While rarely an issue for most homeowners, understanding these rights can be valuable.

Tips for Realtors and Homebuyers

Whether you're a realtor guiding clients or a homebuyer making one of life's biggest purchases, understanding how to approach these exceptions is crucial. Here are some practical tips for both realtors and homebuyers to effectively manage title insurance exceptions.

For Realtors

The most important thing you can do is read the title commitment. Look for any unusual exceptions or restrictions that might affect your client's intended use of the property. Red flags might include unresolved liens, access issues, or extensive mineral rights reservations. If you spot these, it's time to dig deeper and consult with your title company.

When explaining title insurance exceptions to clients, use clear, non-technical language. For instance, describe a utility easement as "a designated area where the power company can access power lines" rather than using legal terminology. Provide real-world examples to illustrate potential impacts, such as how an easement might affect landscape plans.

For Homebuyers

Don't hesitate to ask questions about exceptions in your title commitment. Ask the title company to explain any unfamiliar terms or concepts. Inquire with the seller about their experience with any listed exceptions – for example, "Have you ever encountered issues with the utility easement on the property?"

In some cases, you might consider title insurance endorsements for additional coverage. These can provide extra protection for specific concerns, like zoning compliance or survey issues. Your title company can provide more information about endorsements.

Professional guidance is invaluable when navigating title insurance exceptions. Your realtor can provide initial explanations and flag potential concerns. For complex issues or legal questions, consulting a real estate attorney can offer peace of mind. Don't overlook the expertise of your title company – they're there to help you understand your policy.

Remember, while exceptions are standard in title insurance policies, understanding them is key to making informed decisions about your property purchase. By working closely with your realtor, title company, and when necessary, a real estate attorney, you can ensure you fully comprehend your coverage and any potential property limitations.

At South Oak Title and Closing, we’re here to help clients understand everything they need to know about their title commitment and answer questions about their title insurance coverage. Contact us with your questions, or order a title and schedule a closing today.