What is covered by a fee simple title insurance policy?

So, what is a fee simple title insurance policy? The short answer to this question is: A fee simple title insurance policy insures against title defects when real property is owned in fee simple. If the term ‘fee simple’ is the issue, it simply refers to owning the land or real estate. We’ll cover the term in more detail further below as well.

In order to have a more meaningful understanding of this answer, some definitions might be necessary. In particular, we first need to know what fee simple ownership of real property is.

Then, we must understand what the possible title defects are and how these defects can affect the ownership of real property.

Finally, we need to recognize how title insurance works to protect against these defects, and what the difference is between title insurance and home insurance.

Fee Simple is the Most Complete Type of Property Ownership

In common law countries, such as Great Britain and the United States, there are numerous different ways to own or have an interest in real residential property. Types of property ownership or interest have their own set of limits and restrictions on how the property can be used and how it can be transferred to other persons.

The most complete form of ownership, the form with the fewest restrictions on the owner, is called fee simple. Typically, when a person buys a home or primary residence, the title to the property is held in fee simple.

Other than property owned by the government itself, fee simple ownership comes along with the fewest restrictions. For example, fee simple ownership:

• Is perpetual and does not expire at a defined time
• Can be passed to the owner’s heirs as an inheritance
• May be borrowed against or put up as security to a loan or mortgage
• Can be sold and transferred to another person, who will then also own the property in fee simple.

A fee simple owner title provides the maximum of legal rights for the owner of real property. However, there are a few limits that even fee simple owners cannot avoid, such as:

• The property can be assessed for taxation
• The property can be taken by the government under eminent domain
• The property can be searched and even seized in exercise of the government’s police power
• The property can be subject to liens, a mortgage, easements, and other encumbrances.

The current owner of the property will have to abide by these circumstances.

How can defects affect the property owner?

When a person purchases real property, the assumption is that it is being transferred by a seller with fee simple ownership, without any encumbrances.

But how is the buyer to know for sure whether the seller actually has a fee simple estate, whether the property has been used as security for loans that have not been repaid, or whether the seller has granted another person some kind of easement to all or part of the property? This form of ownership includes some of the defects that could affect the buyer’s enjoyment of the property and might even result in the property owner losing ownership of the property altogether.

How does title insurance protect fee simple ownership?

Title insurance protects a buyer against title defects that could affect fee simple ownership of real property. Typically, fee simple title insurance will cover losses and damages if the property:

• Is unmarketable and cannot be sold
• Cannot be accessed and used by the buyer

In general, buyers and sellers can negotiate who will pay for title insurance, although by custom, many states place the responsibility on one of the two parties. In most cases, the insurance premium is paid only once, and the coverage will last for the duration of the lease the property owner signed for ownership of the entire property.

Many companies offer fee simple title insurance policies. It is important to research and compare quotes from multiple sources, however, to ensure you get the best explanation and prices possible.

Case Studies: Coverage of a Fee Simple Title Insurance Policy

Case Study 1: Clearing Hidden Liens

In a real estate transaction involving a residential property, the buyer discovered an unexpected lien on the property after the purchase was completed. The lien, which had been overlooked during the title search, was related to a previous owner’s unpaid contractor’s bill.

Fortunately, the buyer had obtained a fee simple title insurance policy, which covered the cost of resolving the lien and removing it from the property title.

Case Study 2: Undisclosed Easement Rights

A commercial property buyer was unaware of an undisclosed easement right when acquiring a property. After the purchase, a neighboring property owner claimed the right to access a portion of the buyer’s land for utility purposes. Thanks to their fee simple title insurance policy, the buyer was protected against this unforeseen encumbrance.

The insurance company successfully defended the buyer’s property rights and covered the legal expenses incurred during the resolution.

Case Study 3: Forged Documents and Fraudulent Claims

During the sale of a vacant lot, it was discovered that the seller had provided forged documents, misrepresenting their ownership of the property. The buyer, who had obtained a fee simple title insurance policy, was safeguarded against the fraudulent claims made by the seller.

The insurance company assisted the buyer in establishing their rightful ownership, clearing the cloud on the title, and compensating for any financial losses incurred.

Case Study 4: Boundary Disputes

In a rural property transaction, the new owner discovered a boundary dispute with a neighboring landowner. The dispute arose due to conflicting surveys and unclear property lines. Luckily, the buyer had acquired a fee simple title insurance policy, which covered the expenses related to resolving the boundary dispute and clarifying the accurate boundaries of the property.

Case Study 5: Unresolved Building Violations

After purchasing a residential property, the new homeowner received notices from the local authorities regarding several unresolved building violations. The violations, which were not disclosed during the transaction, included unauthorized structural modifications and violations of zoning regulations.

With the protection of a fee simple title insurance policy, the homeowner was able to address the violations while the insurance company covered the associated costs.