What does Title Insurance Cover?
Question: What are some possible title problems covered by a standard Owner’s Title Policy?
Fraud and Forgery
Those involved in real estate fraud and forgery can be clever and persistent, which can spell trouble for your home purchase.
In a western state, an innocent buyer purchased an attractive home site through a realty company, accepting a notarized deed from the seller, as well as receiving an Owner’s Title Policy. Then another couple, the true owners of the property (who lived in another locale) suddenly appeared and initiated legal action to prove their interest in the real estate was valid.
Under the owner’s title insurance policy of the innocent buyer, the title company provided a money settlement to protect against financial loss.
As it turned out the forger spent time in advance at the local court house, searching the public records to locate property with out of town owners, who had been in possession for an extended period of time. The individual involved, then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling moot contracts through an answering service.
Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing, despite the most careful precautions. Although emphasizing risk elimination, an Owner’s Title Insurance Policy protects financially through negotiation by the insurer with third parties, payment for defending agains an attack on the title as insured, and payment of valid claims.
Conflicts over a will from a deceased former owner may suggest a study topic for law school, but the subject can take on a reality dimension and all too quickly your home ownership is at stake.
After purchasing a residence, the new owner was startled when a brother of the seller claimed an ownership interest and sought a substantial amount of money as his share. It seemed that their late mother had given the house to the son, who placed the deed in his drawer without recording it at the court house.
Some 20 years later, after the death of the mother, the deed was discovered and then filed. Permission was granted in probate court to remove the property from the late mother’s estate, and the brother to who the residence initially was given sold the house. But the other brother appealed the probate court decision, claiming their mother really did not intend to give the house to his sibling.
Ultimately, the appeal was upheld and the new owner faced a significant financial loss. Since the new owner had acquired owner’s title insurance upon purchasing the real estate, the title company paid the claim, along with an additional amount in legal fees incurred during the defense.
When buying a home, it’s important to remember what you don’t know can cost you.
As an example illustrating the need for precautions, the American Land Title Association pointed to a couple who purchased a residence from a widow and her daughter, the only known heirs of the husband and father who died whitout leaving a will.
Soon after the sale, a man appeared – claiming he was the son of the late owner by a former marriage. As it turned out, he indeed was the son of the deceased man. This legal heir disapproved of his father’s remarriage and had vanished when the wedding took place. Nonetheless, the son was entitled to a share of the value of the home, which meant an expensive problem for the unwary couple purchasing the property.
Although the absence of a will hindered discovery of the missing heir in a title search, ALTA said that owner’s title insurance issued at the time of the real estate transaction would have financially protected the couple from the claim by the missing heir. For a one-time charge at closing, owner’s title insurance will safeguard against problems, including those even an exhaustive search may not reveal.
ALTA reminded that owner’s title insurance is necessary to fully protect a home buyer. Lender’s title insurance, which is usually required by the mortgage lender, serves as protection only for the lending institution.