■ V ■ ost recorded ownership, leasehold, and contractual interests such as agreements for deed, contracts for deed, and other rights in real property can be insured with title insurance. As a general rule, if an interest or right in real property, such as a real estate option, is notarized and recorded in the official public records of the county where the property's title is recorded, it can be insured with an owner's title insurance policy. You need to understand that what you are really buying when you buy a real estate option is the property owner's equitable, leasehold, and contractual interests and rights in the title to the property that you are buying the option on. And because there are a number of factors that can affect a property's title and thus its marketability, you need to make certain that any property you buy an option on can be insured with an owner's title insurance policy, issued by a reputable title insurer. In most states, real estate option agreements can be insured by using a standard owner's title insurance policy with a real estate option endorsement. The real estate option endorsement insures the optionee's right to exercise the real estate option. It also insures the priority of the real estate option over any other liens that may be subsequently recorded against the property's title. But if you live in a state that does not recognize a real estate option as being a valid and insurable interest in real property, you will not be able to have your real estate option insured with an option endorsement. The only way that you, as an optionee, can insure a real estate option is with an owner's title insurance policy that includes a real estate option endorsement, which insures your real estate option agreement, rather than just the title of the property being put under option. However, most title insurers will recommend that real estate optionees buy only a standard owner's title insurance policy, which insures the title of the property being put under option, but not the actual real estate option itself. Do not do it. When you buy a title insurance policy to insure a real estate option, you pay a one-time insurance premium, and the insurance policy remains in effect for the life of the option. Typically, a real estate option endorsement policy insures the policyholder against future losses or damages resulting from any valid claims made against the insured property's title. In other words, the title insurer will pay all legal fees for defending any valid claims made against the insured property's title as long as the policyholder retains an interest or right in the property. For example, the standard American Land Title Association (ALTA) owners' title insurance policy provides policyholders with coverage against title defects that originated prior to the policy being issued. Common title defects covered in standard ALTA owners' title insurance policies include:
1. Errors, omissions, and insufficiencies in the abstract or title search.
2. Errors of judgment, negligence, and mistakes on the part of the title examiner.
3. Undisclosed errors and deficiencies in recorded documents, including the misfiling of recorded documents or improper indexing.
4. When not specifically excluded, errors in, or insufficiency of, the survey.
5. Forgeries within recorded documents.
6. Secret marriages or misrepresentations of marital status.
7. Unknown or undisclosed heirs.
8. False impersonation.
9. Instruments executed under expired or revoked powers of attorney.
10. Mental incompetence of the parties executing documents.
11. Confusion due to similar or identical names.
12. Lack of authority of the federal or state government to dispose of or convey the insured property.
13. Children born after execution of a will.
14. Discovery of a will of an apparent intestate.
15. Easements by prescription, which were not disclosed by a land survey.
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