I. UNDERSTANDING THE NATURE OF TITLE INSURANCE
The onward march of title insurance and the steady downward decline of the examination of abstracts of title have continued for the past twenty (20) years and have accelerated within the last decade. Arkansas, however, is now fully integrated into the title insurance industry nationwide. Title insurance is a one-premium agreement to indemnify a policyholder for losses caused by both on the record and off the record defects found in the title or interest to an insured property. The limits to the indemnity are set forth in the agreement itself and do not exceed the face amount of the policy.
Title insurance is unlike other types of insurance in at least two significant ways. First, it is not based on the predication of a future event as is life insurance or accident insurance. Title insurance is rather based in large part on the work of an abstractor or searcher, one who searches the public records of interest in real property to ascertain if defects already exist. The abstractor searches for pre-existing defects arising in past transactions that may be capable of being asserted in the future. This search for past events with future consequences is hardly what most people see as the work of an insurance company. If, in fact, the abstractor’s work is accurate and competent the claims and loss rates for defects for titles recorded on those records should be very low. Title insurance is issued after completion of work intended to reduce the number of claims. In contrast a life insurance company knows that sooner or later it will have to pay the face amount of the policy assuming the premiums are paid in the future.
Second, a title insurance policy is paid for with only one premium and the coverage lasts for as long as the insured has some liability for a title defect, whether as the present owner or as a vendor and warrantor of the state of the title upon some later date.
Title insurance insures not only the on the record defects in title but also covers defects not revealed by an abstractor’s search of the public records. Such defects are referred to as “off record risks" and not even the most thorough and competent title search will identify such a risk. Included in any listing of off record risks are the following:
Misindexing or misfiling of a document by a clerk.
Matters pertaining to the identity of parties to a document.
The delivery of a document to a transferee.
The status of a party executing it, such as whether the person is a married person.
The standard title insurance Owner's Policy provides coverage, subject to the exclusions, exceptions and conditions and stipulations found in the policy against loss or damage sustained or incurred by the insured by reason of the following:
Title to the estate or interest described in Schedule A being vested other than as stated therein.
Any defect in or lien or encumbrance on the title.
Unmarketability of title.
Lack of a right of access to and from the land insured.
A Loan Policy insurance policy will, in addition to the above items, insure against loss or damage due to the following:
The invalidity or unenforceability of the lien or the insured mortgage upon the title.
The priority of any lien or encumbrance over the lien of the insured mortgage.
Lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material.
a. Arising from an improvement or work related to the land which is contracted for or commenced prior to the date of the policy; or,
b. Arising from an improvement or work related to the land which is contracted for or commenced subsequent to the date of the policy which is financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at the date of the policy the insured has advanced or has obligated to advance.
The invalidity or unenforceability of any assignment of the insured mortgage provided the assignment is shown in Schedule A of the policy, or, if the failure of the assignment shown in Schedule A of the policy to vest title to the insured to the insured mortgage in the named insured assignee free and clear of all liens
In addition to the declarations page as set forth in most policies of title insurance, the policy will also contain a Schedule A, Schedule B, Exclusions and Conditions and Stipulations.
Schedule A will contain information relating to the amount of the insurance, the named insured, the estate or interest which is covered by the policy, title to whom the estate or interest is vested and a description of the property covered. In addition, a file number, policy number and the date of the policy will normally be found in Schedule A.
The contents of Schedule B will be of significant importance to the attorney reviewing the policy. Schedule A will normally contain the exceptions from coverage. The general or standard exceptions you can expect to find on an Owner's Policyare as follows:
Rights or claims of parties in possession not shown by the public records.
Encroachments, overlaps, boundary line disputes and any other matters which would be disclosed by an accurate and complete survey and visual inspection of the premises.
Easements or claims of easement not shown by the public record.
Any lien or right to a lien for services, labor or material heretofore or hereafter furnished or imposed by law and not shown by the public records.
Taxes or special assessments that are not shown as existing liens by the public records.
In addition to these general or standard exceptions, Schedule B will also normally contain the special exceptions from coverage under the policy. In this section you can expect to find exceptions to bills of assurance or restrictive covenants that the property is subject to any easements of record that affect the title to the property or any other matters that may be exceptions not previously mentioned. InArkansas, you will normally find that oil, gas and other minerals are excepted in this section.