Standard v. Enhanced: Real estate taxes

Part 2 of a series

In my view, the most underrated insuring provision of the Enhanced owner’s title insurance policy relates to real estate tax assessments occurring after the transfer of ownership.

The Enhanced policy we offer through our underwriter First American states (as a covered risk): "A taxing authority assesses supplemental real estate taxes not previously assessed against the Land for any period before the Policy Date because of construction or a change of ownership or use that occurred before the Policy Date."

While the Standard (Limited) owner’s title insurance policy insures against a real property tax lien and/or assessment imposed by the taxing authority prior to the policy date (i.e., transfer of ownership), it does not insure against real property liens or assessments occurring after the policy date.

Oftentimes, prior to or at the time of closing, the governmental taxing authority fails to properly or accurately report unpaid taxes, or later imposes a supplemental tax bill due to new construction re-assessments or change of property use by the seller.

Example in the District of Columbia

The tax class may change prior to transfer of ownership from owner-occupied to vacant/abandoned, resulting in a sizeable tax assessment imposed after the buyer has taken ownership.

Example in Maryland

A supplemental tax bill may be issued due to construction improvements, resulting in a hefty assessment imposed on the buyer well after the closing.

In each of these examples, the homebuyer would be covered by an Enhanced owner’s title insurance policy but would not be protected if he/she elected to purchase the Standard (Limited) owner’s title insurance policy.

There are many other insuring provisions to consider when selecting the type of owner’s title insurance coverage and I invite all of our prospective homebuyers to take a look at our title insurance coverage comparison.

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