Title Reports are an integral part of the sale transaction. All Oregon REALTORS® sale transactions require the Seller to provide an American Land Title Association [ALTA] “Standard Coverage Owner’s Policy of Title Insurance, showing title vested in the Buyer.” This standard owner’s policy covers the Buyer against possible losses and damages that happen due to issues or defects in the title. Basically, title insurance companies will pay for harm caused to the Buyer if the title turns out to have defects [e.g. nobody recorded it properly, so the owner doesn’t actually own the land], if there are unmarketable title issues, if there are access right issues, municipal zoning or usage issues present at closing, lien or mortgage issues, and a few others. The company insuring the title will pay to cover the costs incurred from the issues, generally in the form of remuneration.
With all of the above coverage, there are some exceptions. Title will always exclude a handful of things from the title insurance policy:
1. Law or regulation that restricts occupancy, use, enjoyment of the land, character/dimensions of the land, subdivision of the land, environmental protection/remediation, government forfeitures, or enforcement of these issues.[Basically, if the law already says you can’t do it, title won’t pay for your fight with city hall.]
2. Any power of eminent domain [if the government takes your land, title won’t pay for that problem].
3. Defects, liens, encumbrances or matters (a) created by the Buyer, (b) not known to title or otherwise in the public records, (c) resulting in no damage to the Buyer, (d) attaching or created after the ALTA policy is given, or (e) resulting in loss or damage that would not have been sustained if the Buyer had paid for the policy on time [if title couldn’t have known about the issue, they aren’t responsible for it].
4. Unenforceable mortgage issue caused by the Buyer’s noncompliance.
5. Claims caused by bankruptcy.
6. Liens caused by real estate taxes from a government agency.
7. Discrepancies in square footage or acreage of land or improvements.
The policy also very specifically excludes issues that are specifically identified in the Title Report Schedule A. None of those stated items [e.g. unpaid property taxes, easements, and CC&Rs] will trigger title insurance payments.
Functionally, the above list can be distilled down into: “Title won’t cover you for issues that they couldn’t possibly know about; title won’t cover you for issues that we already know about; title won’t cover you for issues with government or taxes; or for issues that the Buyer causes.” What title insurance does do is cover you for the lawsuits that result from mechanics liens, poor surveys, forged documents and inheritance conflicts.
If someone springs out of the woodwork and claims they have the original deed and therefore own the land; your title insurance should cover that lawsuit. Having a clean title report that all parties review and approve is as close as most consumers can get to guaranteeing the marketability of the Seller’s title.