Understanding the Benefits of an Enhanced Owner’s Title Policy
The title agent’s intent is to research thoroughly the ownership rights of the property, as well as any judgments or liens that may exist that could affect your rights to the property. Then the agent clears or cures those issues to ensure that you have free and clear title to the property when you purchase it.
Although your title agent is diligent in searching out the facts about your property that are in the public record, not everything about your property is “of record.” Therefore, a standard title policy includes exceptions to coverage for certain matters that may be undiscoverable.
An Enhanced Owner’s Policy adds 22 new covered risks that are excepted in the standard policy. The enhanced policy is typically available to purchasers of an owner-occupied one-to-four family residence wherein each insured is a “Natural Person.” The term “Natural Person” is defined under the conditions of the title policy. With the enhanced policy, the policy insures against certain future activities and matters that would not be discoverable by the title agent’s search of the land records.
Coverage under an enhanced policy continues to be subject to the title policy’s conditions, exclusions and exceptions unless it is stated differently in the covered risk itself.
Let’s take a look at the additional coverage offered with an Enhanced Owner’s Policy.
One of the most important benefits of an Enhanced Owner’s Policy is inflation coverage. The amount of insurance automatically increases by 10% of the policy amount each year for the first five years, up to 150% of the amount insured for your home. This occurs, without payment of any additional premium, to cover increases in the value of the insured property.
Building Permit Violation
When you purchase a home, you may not be aware that the former owner failed to obtain a legal permit from the proper government office to put in a swimming pool, add a wing to the house or construct an additional dwelling unit (ADU).
An enhanced policy protects you if you are forced to remove or remedy your existing home, or any part of it (other than boundary walls or fences) because any portion was built by a previous owner without obtaining a building permit. This coverage is subject to a deductible amount and a maximum dollar limit of liability, as shown in Schedule A of the title policy.
Covenants, Conditions and Restrictions
Covenants, Conditions & Restrictions (CC&Rs) list the rights and obligations of a homeowners’ association (HOA). This could include your maintenance obligations, property-use restrictions, assessments and insurance obligations, among others.
Without your knowledge, these CC&Rs may have been violated prior to your ownership, resulting in a financial obligation to the HOA or loss of title. An enhanced policy covers you if you are forced to correct or remedy the existing violation or if the title is lost or taken because of any covenant, condition or restriction, which occurred before you acquired your title, even if the covenant, condition or restriction is excepted in the policy.
If any structures on your new property are encroaching onto your neighbor’s property, for instance if the garage is built partially on the neighboring property, the enhanced policy provides coverage in the event you are forced to remove those structures due to the encroachment. If the encroaching structures are boundary walls or fences, this coverage is subject to a deductible amount and a maximum dollar limit of liability, as shown in Schedule A of the policy.
In addition, the policy provides coverage in the event your neighbor builds any structures, after the policy date, that encroaches onto your land (other than boundary walls and fences).
An enhanced policy insures you have actual pedestrian and vehicular access to your property.
Map and Address Inconsistencies
If a map is attached to your policy, the enhanced policy provides coverage if the map does not show the correct location of the land, according to the public records.
Sometimes a taxing authority may assess supplemental real estate taxes not previously assessed against the land but covering a period prior to your purchase. This could be due to new construction or a change of ownership that occurred before the policy date. An enhanced policy would cover this liability as well.
If a previous owner added structures to the property that violate zoning laws, an enhanced policy provides coverage to you if you are forced to remove or remedy your existing structures, or any part of them, due to those violations. If you are required to remedy existing structures, the amount of insurance is subject to a deductible amount and maximum dollar limit of liability, as shown in Schedule A of the title policy.
In addition, you are insured if it is determined your property cannot be used as a single-family residence because it violates existing zoning laws or zoning regulations.
Property ownership is often more complicated than we know, especially if you are purchasing property in an unusual situation, where property has been recently subdivided or where there has been recent construction. If you have any questions or concerns, it may be advisable to enlist the help of a real estate attorney to review all aspects of your purchase. We also invite you to contact a local title insurance agent to learn how the Enhanced Owner’s Title Policy can provide you additional protection for your homeownership rights.