If you’re in the market for a home, you are probably familiar with title insurance, as mortgage lenders require it to insure your mortgage. But not everyone knows why title endorsement is wanted or needed. We’ve got you covered.
What Is Title Endorsement?
“Title endorsements expand the coverage of a standard owner’s title insurance policy, usually either by removing exceptions to the standard policy or by adding coverage specific to the property’s situation,” explains Elizabeth Whitman, attorney-at-law with Whitman Legal Solutions in Potomac, Maryland.
While a standard policy will protect against many common title issues, such as recorded liens not listed on the policy, errors in the deed and fraudulent deeds, title endorsements cover more specialized issues, she says.
There are two types of endorsements. “First, the lender’s underwriters have certain requirements to underwrite a loan, which are determined by the lender,” says Eric Klein, principal attorney and president at Klein Law Group in Boca Raton, Florida. And then the borrower might also request certain endorsements be added to a policy.
While the American Land Title Association (ALTA) regulates and sets guidelines for the different types of endorsements on a national level, each state also has its own Land Title Association, which might have additional requirements.
What Types of Title Endorsements Are Most Common?
Title endorsements can cover a wide variety of issues, many of which will be specific to your state or region. However, some of the more common endorsements for owners of residential properties include:
Indirect Access and Entry
This insures the owner will have access to the property from a public street, explains Whitman. “This endorsement is important when the property is not adjacent to a public street or depends on an easement over someone else’s property for access to the road.”
These have to do with how your structures are situated on your property. For example, if your garage was built too close to the property line, and the eaves overhang into the neighbor’s yard, the title company will endorse encroachment and provide coverage for losses in case a future neighbor demands you move the structure, says John O’Brien, senior business attorney at O’Brien, Watters & Davis in California.
Covenants, Conditions and Restrictions
This endorsement generally provides coverage for owner losses from violations of restrictive covenants, Whitman says. For example, perhaps local zoning regulations allow you to build a second accessory unit on your property. However, when the property was subdivided, the subdivision plat included a restriction that states only one structure can be built on the lot. In that case, the owner wouldn’t be able to build that second unit, unless a CCR endorsement is obtained.
Do I Need a Title Endorsement?
The cost of title endorsements varies from state to state but will be the same from any lender; in other words, you don’t need to shop around for these. Although many endorsements don’t cost a lot of extra money, owners still need to consider whether the cost of the endorsement justifies the benefit, says Whitman.
For example, while an endorsement that covers mechanic’s liens might be important for a property that recently has undergone substantial renovations, it can be less important for a property where no work has been done recently.
In Illinois, for example, an endorsement for a mechanic’s lien would be important in context of new construction because there are up to 120 days after work is completed to file a lien, explains O’Brien.
“If work was recently completed, you would want an endorsement that says the title company is satisfied that the builder has paid all the workers, so if one of them later files a lien, the company will defend against that lien.”
Be aware that for many of the endorsements, an extensive property survey might be required, which will add to the cost. Also, because title endorsements only require a title insurance company to compensate an owner for actual losses, an owner who puts down a large down payment has more to lose if there is a problem than one whose down payment is modest, Whitman says.
A homebuyer who wants to know what is needed should start by taking cues from the lender, explains Whitman. “That’s because the lender usually provides 80% or more of the money for the home purchase and has an incentive to select appropriate endorsements,” she says. “If the lender wants an endorsement, then the owner should ask for the comparable owner’s endorsement if it is available.”
Title companies usually charge very little for an owner’s policy if the same endorsement is on the loan policy.
However, while real estate agents and lenders can answer many questions, often they do not have a great depth of knowledge relating to title insurance, says Klein.
“While they know enough to answer very cursory questions, anything more expensive or specialized might not be in their wheelhouse. A title company may provide answers to common questions, but for more confirmation or questions, a home buyer should consult with an attorney.”
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