One of the items almost all title insurance policies EXCEPT are the terms and conditions of the Restrictions and Protective Covenants and/or Homes Association Declarations. If you don’t know what they are, ask for a copy and read it.
In a few of the Home Association Restrictions or Covenants, most of which were created in the 60’s and 70’s, there is a right of first refusal for the adjoining land owners to purchase the property if you sell. These restrictions require that before you sell, you have to offer the property at the same price and terms to your neighbors. Depending upon the subdivision, it could be the neighbors whose lots adjoin yours or any one of many configurations. Some of these restrictions were an attempt to circumvent discrimination laws. Other typical restrictions are prohibition of additional buildings, fences and even sometimes basketball goals ,to just name a few.
Of course, the owner hadn’t read it. Didn’t do his due diligence when he bought it nor did he read them anytime since he owned it. Nor did he read the current title commitment that was given to him upon the signing of his existing contract to sell the property, which required him to notify the property owners to the left and right of his property that they had 15 days to meet the offer or their right expired. He was supposed to close on the sale that day and had moved out and needed his proceeds to purchase another property. The adjacent owners could relinquish their rights,however one said they would not sign as they had never had to do that before. So now the current owner had to wait 15 days to sell. He was in jeopardy of losing the property he had contracted to purchase and he and his family were living in a motel. All of this could have been avoided had he read and understood either commitment: the one when he bought it or the one he just received a few weeks ago.
He was pretty angry that he didn’t have coverage for the Homes Association restriction and that we didn’t advise him about this clause out of 60 in the declarations of the subdivision. We explained that he should have read them or hired an attorney to advise him. We can’t practice law as a title insurance agent or escrow company and can’t advise anyone. We are a neutral third-party who follows instructions given us and federal and state laws.
When looking at a Title Insurance Commitment be sure to read and understand SCHEDULE B, SECTION TWO, EXCEPTIONS. These are the things that are NOT covered. This is true for a Lender’s Policy, also. Typically, among other items, easements, homes associations covenants and/or restrictions, right of ways and sometimes items on recorded plats and surveys are excepted, although there can be other items as well. You need to do your due diligence on all these items to make sure you can live with them. If you don’t understand them, hire an attorney to advise you so that you can make an informed decision and are aware of how these items might affect your ownership or loan.
Then it will not be a surprise that the EXCEPTIONS are items that are not covered.