The short answer to this question is: A fee simple title insurance policy insures against title defects when real property is owned in fee simple.
However, in order to have a more meaningful understanding of this answer, some definitions are 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 ownership of real property.
Finally, we need to recognize how title insurance works to protect against these defects.
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 in real property. Each type of ownership or interest has its own set of limits and restrictions on how the property can 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.
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.
A fee simple title provides the maximum of legal rights for the owner of real property. However, there are a few limits that even fee simple owners 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, mortgages, easements, and other encumbrances.
Title Defects Can Affect Property Ownership
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 fee simple estate, whether the property has 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 the property? These are some of the defects that could affect the buyer’s enjoyment of the property and might even result in the buyer losing ownership of the property altogether.
Title Insurance Protects 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, or
- Cannot be accessed and used by the buyer.
In general, buyers and sellers can negotiate who will pay for title insurance, 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 buyer’s ownership of the property.
Many companies offer fee simple title insurance policies. It is important to research and compare quotes from multiple sources. To get started with such a search, enter your zip code in the form on this page.