What is covered by a fee simple title insurance policy? (2023)

So, what is a fee simple title insurance policy? The short answer to this question is: A fee simpletitle 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.

Table of Contents

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 inreal residential property. Types ofpropertyownership or interest have their own set of limits andrestrictionson how thepropertycan 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.

Read More: Understanding Home Insurance

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.

Afee simpleownertitleprovides the maximum oflegal rightsfor the owner ofreal property. However, there are a few limits that evenfee simpleowners 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.

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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 feesimple estate, whether thepropertyhas 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 theproperty? Thisform of ownershipincludes some of the defects that could affect the buyer’s enjoyment of thepropertyand might even result in theproperty ownerlosing ownership of thepropertyaltogether.

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 fortitleinsurance, 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 theentire 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.

Frequently Asked Questions

What does fee simple title insurance cover?

Fee simple title insurance covers title defects that can affect ownership of real property.

What is fee simple ownership?

Fee simple ownership is the most complete form of property ownership with the fewest restrictions.

How do defects affect property owners?

Defects in title can impact a property owner’s rights and potentially lead to loss of ownership.

How does title insurance protect fee simple ownership?

Title insurance safeguards against covered defects, providing financial protection for property owners.

Can I negotiate who pays for title insurance?

Buyers and sellers can negotiate who bears the cost of title insurance during a property transaction.

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Written by:

Laura D. Adams

Insurance & Finance Analyst

Laura Adams is one of the nation’s leading finance, insurance, and small business authorities. As an award-winning author, spokesperson, and host of the top-rated Money Girl podcast since 2008, millions of readers and listeners benefit from her practical advice. Her mission is to empower consumers to live healthy and rich lives by planning for the future and making smart money decisions. She rec...

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Written by Laura D. Adams

Insurance & Finance Analyst

Reviewed by:

Daniel Walker

Licensed Insurance Agent

Daniel Walker graduated with a BS in Administrative Management in 2005 and has run his family’s insurance agency, FCI Agency, for over 15 years (BBB A+). He is licensed as an insurance agent to write property and casualty insurance, including home, life, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco.To ensure our content is accura...

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Reviewed by Daniel Walker

Licensed Insurance Agent

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