Should I Delete Standard Exceptions 1-4?

Standard title insurance policies do not cover certain risks. Risks that are not covered by a title insurance policy are referred to as “exceptions.” There are several “standard” exceptions that are shown on title commitments and title insurance policies.

Standard exceptions 1, 2, 3, 4, and 5 limit the coverage under a title insurance policy. However, some of this coverage can be reinstated as described below. At Schedule B of your commitment (or on your title insurance policy), you will find the following language:

“This policy does not insure against loss or damage, and the Company will not pay costs, attorneys’ fees, or expenses that arise by reason of…”

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Standard Exception 1

Rights or claims of parties in possession not shown by the public records.

This exception excludes coverage for certain claims of tenants, squatters or other persons who may claim possession of the property. You can get coverage against these risks if you elect to delete Standard Exception 1.

An affidavit is required from the sellers stating that they have sole possession of the property. If the sellers do not have sole possession, an inspection of the property and release from the party in possession are required.

There is no extra premium charge for this coverage, but there may be a charge for inspection of the property.

Standard Exception 2

Easements, or claims of easements, not shown by the public records.

This exception excludes coverage for easements not shown in the public records, such as prescriptive easements or easements by necessity. You can get coverage against these risks if you elect to delete Standard Exception 2.

A recent survey or Improvement Location Report meeting the insurer’s requirements is required for this coverage, and there may be a charge for a surveyor to produce a survey or ILR.

There is no extra premium charge for this coverage.

Standard Exception 3

Encroachments, overlaps, conflicts in boundary lines, shortages in area, or other matter which would be disclosed by an accurate survey and inspection of the premises.

This exception excludes coverage for encroachments, overlaps, conflicts in boundary lines, shortages in area, or other matters which would be disclosed by an accurate survey and inspection of the premises. You can get coverage against these risks if you elect to delete Standard Exception 3.

A recent survey or Improvement Location Report meeting the insurer’s requirements and certain affidavits are required in order to obtain this coverage. There may be a charge for a surveyor to produce a survey or ILR.

The cost of this coverage is 15% of the full Basic Premium Rate in effect at the time the coverage is provided.

Standard Exception 4

Any lien, claim or right to a lien, for services, labor or material heretofore or hereafter furnished, imposed by law and not shown by the public records.

This exception excludes coverage for certain liens (i.e. claims filed for payment for services and materials provided in connection with the property – Mechanics’ Liens) not filed in the public records on the policy date. You can get coverage against these risks if you elect to delete Standard Exception 4.

For new construction, all work must be completed and an affidavit and indemnity agreement executed stating that all subcontractors, materialmen and/or suppliers have been paid in full in accordance with underwriter requirements.

For existing construction, the seller must execute an affidavit and indemnity stating that no improvements have been made within 120 days of issuance of the policy; and/or an affidavit that all work has been paid for in full, along with copies of all receipts and lien waivers from the mechanics and materialmen.

The charge for this coverage is $50 if the statutory time limit for filing a lien has expired. If the time limit has not expired, the charge is $3.00 for each $1,000 of insurance (on an Owner’s Policy) or $5.00 for each $1,000 of insurance (on a Loan Policy). In either case, you will have to provide information that the company requires, and the Buyer or Seller will be responsible for any cost of providing such information.

Standard Exception 5

Community property, survivorship, or homestead rights, if any, of any spouse of the insured (or vestee in a leasehold or loan policy).

This exception may be deleted from an Owner’s Policy or Loan Policy if the vested owner is a corporation, a partnership, other artificial entity, or a person holding title as a trustee, or personal representative of an estate.

This exception may be deleted from a Loan Policy if both spouses are the borrowers or the vested owner’s spouse has signed an acceptable, recordable sole and separate property agreement, specifically describing the property to be insured.

This exception may never be deleted from an Owner’s Policy if the insured is an individual.

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