In Philadelphia and its adjacent counties, obtaining title insurance upon the purchase of real estate has become routine (not so as you go north or west of the area). This is especially so when there is a bank or other commercial lender involved in the transaction; the lender will always require the buyer to insure title.
As the term implies the company insuring title will search the records of the county in which the real estate is located to determine certain things such as: (a) Going back to the origin of the county, is the “chain” of title complete so that the seller/grantor can deliver title to the buyer? (b) Are there any mortgage or other lenders’ liens against the title which will remain as liens after the buyer completes settlement? (c) Are there any encumbrances other than liens, such as easements which might impede the buyer’s intended use of the property? (d) Are there any deed restrictions (such as a proscription of the sales of alcoholic beverages which would be unacceptable to a potential restaurant user or a requirement that any building on the property be set back an unreasonable distance from an adjacent lot).
While most buyers find a certain comfort in their title insurance policies, there are a number of limitations on the insurance which buyers should be aware of (and often are not). For example, to the surprise of many purchasers the title insurer normally does not insure the location of the boundaries of a property unless the buyer has a formal survey prepared and pays an additional premium.
A further illustration of title insurance limitation is found in a recent decision of the Pennsylvania Superior Court in Rood v. Commonwealth Land Title Insurance Company. The owner purchased a home on the Main Line in the 1970’s with title insurance; 25 years later, he found an abandoned septic tank buried in his front yard and was required to incur substantial expense in removal of the tank. He tried to recover his expenses from the title insurance company on the ground that the existence of the tank documented in the Township’s “Record of Sanitary Drainage and Plumbing Fixtures,” and the title company failed to notify him of it.
In his suit against the title insurance company, the owner alleged that the title company had an obligation to make him aware of the tank’s existence; and further that he would not have purchased the property had he been aware of the “defect.” The title policy specifically protected him against any “defect, lien or encumbrance” upon the title of the property, and the land owner argued that the requirement of the State for him to remove the tank amounted to an encumbrance on his title.
The title insurance company prevailed at the trial court level, and in its affirmance of the lower court’s decision the Superior Court reasoned that there is a difference between legal defects in title and physical defects in a property. The conclusion was that the title insurance policy does not protect against physical conditions such as the existence of asbestos or lead paint, presence of hazardous contaminants, existence of a flood plain, or a structurally unsound house upon the property being insured. None of those conditions is deemed to be a defect in title.
So, the adage caveat emptor, let the buyer beware, very much applies to the purchase of real estate even though title is insured. Nothing will serve as well as a careful physical inspection; of course, even that will not insure against latent defects. Almost as common as title insurance is the provision for professional physical inspection in the purchase of real estate.
In any purchase there is a degree of risk, but a carefully prepared agreement should contain proper contingencies to reduce the perils and protect the buyer.
– Ken Butera