Owner's title insurance: Encroachment from neighboring property

Part 3 of a series

Just recently, during our underwriting review of an upcoming closing, our office discovered that the subject property — we will call it LOT 1 — was severely encroached upon by the improvements of the neighboring lot, which we will call LOT 2.

I have included an actual copy of the location drawing below for your reference.Immediately after our discovery, my office forwarded a copy of the location drawing to the buyer and the seller advising them that we could not insure title without taking special exception to the encroachment.

Because the sales contract required the seller to convey insurable title without additional risk premium or uncommon exceptions, the buyer declared the contract void and obtained a return of her earnest money deposit.

Two years ago, the seller had purchased the property for $450,000 with a down payment of $90,000 (his equity) and the title company had failed to advise him of this severe encroachment from the neighboring property.

Fortunately, the seller elected to purchase an enhanced owner’s title insurance policy which specifically covers this type of situation – the insuring provision reads: "Someone else has a legal right to, and does, refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it because Your neighbor’s existing structures encroach onto the Land."

In laymen's terms that means if you cannot sell your house, or that you have to sell it for far less, because your neighbor's additions have seeped onto your side of the property line, then all is not lost. The enhanced owner's policy has you covered.

No doubt this insured seller will be filing a claim against his owner’s title insurance policy. And the insurer will have to pay all attorney fees for correcting the problem, as well as the actual loss suffered by the insured seller, according to the terms of the policy.In this case, the seller may have to sell the property for far less than the original sales contract, and that difference would constitute his actual loss.


Related Articles

Leave a comment

You are commenting as guest.
  • Ways to save at closing

    Title charges are the largest chunk of closing costs and can vary by hundreds of dollars.

    Learn more

  • What are closing costs?

    The real estate closing process involves loan steps, legal steps and title steps.

    Learn more

  • What's title insurance?

    Insure your legal ownership just like you'd insure the building, but for lots cheaper.

    Learn more

Connect with us

Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.