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The insurance cost of an owner's title insurance does not really change with value of the property. The title insurer uses their own methods to determine the likelihood of a title issue arising and THAT is how the cost is determined. In contrast the title insurance that is required to be paid by buyers and covers the lender is generally priced as function of the loan and value of the property BUT that is because the lender is concerned with the ultimate saleability of the property should the buyer default and there is an issue with the title. The lender's exposure is generally proportional to the property value.
The insurance cost of an owner's title insurance does not really change with value of the property. The title insurer uses their own methods to determine the likelihood of a title issue arising and THAT is how the cost is determined. In contrast the title insurance that is required to be paid by buyers and covers the lender is generally priced as function of the loan and value of the property BUT that is because the lender is concerned with the ultimate saleability of the property should the buyer default and there is an issue with the title. The lender's exposure is generally proportional to the property value.
Here in FL if someone is purchasing a property with cash and only getting an owner's policy, the owner's policy is calculated on the specific purchase amount. The specific purchase amount is what shows on the title commitment as the policy amount.
I am waiting to hear back from my underwriting attorney what that policy amount really means, since home values are always fluctuating. Is that policy amount the highest cap amount the insurance company would actually pay out defending your title or making "you whole again" should you actually suffer a loss from something not listed under the exceptions on a title policy.
To answer the OP's question (and I can say I'm a "pro" since I'm a lawyer married to an escrow agent):
Yes, you need to supplement your original policy if you want to be covered for a value beyond the original policy limit. From the same linked source:
Quote:
What if my home increases in value? Am I still covered?
You are covered for the value of your policy. If you add improvements to your home, or if your home increases in value over time, you can buy an increased value endorsement to cover the increase in your property’s value.
Still waiting for the attorney to return my call, in the meantime looking through an owner's policy that was issued by my agency there is a section labeled:
8. Determination and Extent of Liability This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the Insured Claimant who has suffered loss or damage by reason of matters insured against by this policy. (a) The extent of liability of the Company for loss or damage under this policy shall not exceed the lessor of (i) the Amount of Insurance; or (ii) the difference between the value of the Title as inured and the value of the Title subject to the risk insured against by this policy.
I cannot comprehend what (ii) really means but will get clarification soon! How fun law school must be for these attorney's right!
Part (ii) basically means the amount of damages, which could be less than the policy limits.
If the limit is $300k, but the property is worth just $250k, the insurer is going to pay you $250k if it turns out you have no right to the property at all.
Another possibility is that the damages are less than the total value of the property because the defect in title is incomplete: for instance, if it turns out that there's an easement or a restrictive covenant applicable to the insured property that the title company missed. The owner gets to keep the property subject to the encumbrance, so the "value of the Title as insured" doesn't go to zero, but it is reduced by some amount because the owner's use of the property is restricted in some way.
Last edited by hbdwihdh378y9; 08-25-2017 at 01:54 PM..
When we closed on the house we upped the title insurance amt to the appraised value of the house (based on my lender's appraisal). My lawyer seemed confused when I initially made the request (NC is an attorney title state so he represented the title company as well) but finally understood what I wanted.
Part (ii) basically means the amount of damages, which could be less than the policy limits.
If the limit is $300k, but the property is worth just $250k, the insurer is going to pay you $250k if it turns out you have no right to the property at all.
Another possibility, is that the damages are less than the total value of the property because the defect in title is incomplete: for instance, if it turns out that there's an easement or a restrictive covenant applicable to the insured property that the title company missed. The owner gets to keep the property subject to the encumbrance, so the "value of the Title as insured" doesn't go to zero, but it is reduced by some amount because the owner's use of the property is restricted in some way.
Makes a lot more sense now! I guess another example would be a mechanic's lien from unpaid work the previous owner did not take care of that all of a sudden shows up that needs to be taken care of but most likely wouldn't be close to the full policy amount.
Most of the time the concepts are easy to understand but usually not the way they are articulated.
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