What Is a Short Form Title Insurance Policy?
Some title searches are more complicated than others. It follows that the insurance policies these searches produce range in complexity as well.
That’s where short form title insurance policies come in. And if you’re a home buyer, you should be thankful they exist, for two key reasons: They’re convenient, and they cost less than traditional forms to produce.
A short form title insurance policy is a type of lender’s title insurance. It recognizes that not all real estate purchases are created equal, which is to say multi-million dollar transactions require far more paperwork and thoroughness than those involving small homes.
Title companies save money by spending less time on low-risk, small real estate transactions. They can complete policies efficiently and lenders review them quicker (because they incorporate endorsements from longer policies), which allows you to close on your new home sooner and save time and money in the process.
Here’s what you need to know about a short form title insurance policy.
When Does Short Form Title Insurance Apply?
The short form policy was introduced to improve efficiency in issuing title insurance policies on smaller real estate transactions. It’s only applicable to one-to-four family homes and condominiums (on fewer than 25 acres of property)—those that tend to have fewer title issues arise. It never applies to commercial real estate transactions.
And it makes sense as to why it came about. Simpler transactions (relatively speaking) demand simpler solutions. For instance, commercial purchases can involve huge sums of money, so no stone should be left unturned in the transaction. The same can be said of larger homes and properties, where boundary disputes, tax liens, and ownership may be less clear—a long-lost relative would likely care more about the sale of a mansion than a studio apartment.
Because title companies can turn around short form title insurance policies so quickly, they’re issued at closing. Everyone benefits.
What Are the Benefits of Short Form Title Insurance Policies?
Short form policies benefit lenders and title companies more directly than they do sellers or buyers (whoever is handling the purchase of the policies). It has to do with paperwork, that tedious process to verify the authenticity of a transaction: There’s less of it. Title companies conduct the searches, then prepare policies that lenders review.
And because there’s less paperwork—by design, it should be said—the title companies and lenders devote less time and fewer resources into producing short form title insurance policies.
The benefits of short form title insurance policies for title companies:
Title companies benefit because they can prepare policies quicker, going from starting the search to providing forms in no time. How? The short forms incorporate complex endorsements. They serve the same purpose as long form policies, just in far fewer pages.
The benefits of short form title insurance policies for lenders:
Writing in the May/June 2003 issue of Title News, Clifford Morgan, then chair of the American Land Title Association (ALTA) Title Insurance Forms Committee, said, “One wonders why lenders have not been charging the gates to obtain this policy for virtually all of their residential one-to-four family and condominium loans.”
It’s safe to say 17 years on, short form insurance policies are very much sought after—and with good reason. When lenders review title insurance policies, they check for accuracy. On longer forms, this requires painstaking attention to detail, typos, and language to make sure everything is in place before the policy goes into place. After all, they’re effectively guaranteeing and protecting their interest in a property.
But because short form policies incorporate so much legal language, lenders really only double-check the details specific to the transaction—rate and names. Which brings us to you.
The benefits of short form title insurance policies for you:
There are two clear benefits for you, the home buyer: You can close on your new home sooner, and, given the title companies and lenders spend less time on the short forms, you’ll spend less for the policy than you would for longer forms.
It’s really a logical improvement that capitalizes on advancements in technology and behaviors. As soon as the lender funds your loan, the policies can be issued. It expedites everything, and they’re now widely accepted across the United States.
When the topic of title searches and insurance comes up with your lenders and realtor, be sure to ask about the short form title insurance form.