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Newsletter

 

TITLE INSURANCE CLAIMS AND EXAMPLES

"Title Tuesday" continues with an overview of common title claim areas. 

We will also look at two examples of homeowners that benefited greatly from having title insurance on their homes.  

According to the American Land Title Association “ALTA” 
75 – 85% of claims are made in the first
6 years of the title policy

A title search can help uncover title defects tied to a property. Title insurers eliminate risk before issuing a policy, as opposed to casualty insurers, which assume risk for events that may occur after the policy is issued.  This is why the title industry has a very low number of claims each year while other casualty insurers such as medical and car insurance have numerous claims.  Title Insurance eliminates risk while casualty insurers are in the risk assumption business.  

Title insurance policies provide homeowners with protection from title problems discovered after the home is purchased and a policy has been issued.  When a homeowner becomes aware of an issue effecting the ownership of their home that was not known at the time they purchased and was not excepted from coverage in their title policy they may seek to  file a Title Claim with their title insurance company.   

Common Title Insurance Claims Areas 

 

 

A CLOSER LOOK...

1. False impersonations of a previous owner

Common and similar names can make it possible to falsely "impersonate" a property owner. It is not difficult to obtain falsified identification.  Imagine a husband wants to sell a home unbeknownst to his estranged wife.  He can provide his girlfriend with a fake I.D. bearing his wife's name and she can impersonate the wife at the closing signing the documents as the wife and thus selling the home without the wife's knowledge.  If a home is purchased that was once sold by a false owner, the new homeowner can risk losing legal claim to the property.

2. Forgeries

Like false impersonation forgeries is another claim arising from dishonesty.  Sometimes forged or fabricated documents that affect property ownership are filed within public records, obscuring the rightful ownership of the property. Almost every person has some level of computer skills.  It takes very minimal effort to create a believable forgery that can become part of the public record. Once these forgeries are discovered home ownership may be in jeopardy.

3. Illegal deeds

While the chain of title on a property may appear perfectly sound, it's possible that a prior deed was made by someone who lacked the capacity to enter into a deed such as a minor or a person of unsound mind. These instances may affect the enforce-ability of prior deeds, affecting prior (and possibly present) ownership.

4. Errors in public records

Part of being human is making mistakes, however mistakes affecting home ownership rights can have devastating repercussions.  Clerical or filing errors could affect the deed or survey of a property and cause undo financial strain in order to resolve them.

5. Unknown liens

The debts owed by the prior owners can come to effect the new homeowners.  Even though the former debt is not the new homeowners, banks or other financing companies can place liens on the property for unpaid debts even after the closing and ownership has been transferred.  This is an especially worrisome issue with distressed properties. 

6. Missing heirs

When a person dies, the ownership of his home may fall to his heirs, or those named within his will. However, those heirs are sometimes missing or unknown at the time of death. Other times, family members may contest the will for their own property rights. These scenarios — which can happen long after the property has been purchased could effect property rights.

7. Undiscovered encumbrances

At the time of purchase, it may be unknown that a third party holds a claim to all or part of the property — due to a former mortgage or lien, or non-financial claims, like restrictions or covenants limiting the use of your property.

8. Unknown easements

Although the homeowner might own the home and surrounding land there might but an unknown easement that prohibits use in some manner or could allow government agencies, businesses, or other parties to access all or portions of the property. While usually non-financial issues, easements can still affect the right to enjoy the property.  For example if you purchased a home with a lovely backyard.  You planned to put up a swing set and finish the patio so you could sit and watch your children play.  But  you soon came to learn that there was a driveway easement that crossed the back of your property (exactly in the spot for the swing set and patio ) that allowed your neighbor to drive his truck across your lawn to access his home.  You would not be happy with that discovery.  

9. Boundary/survey disputes

Although a homeowner may have seen several surveys of the property prior to purchasing, other surveys may exist that show differing boundaries. Therefore, a neighbor or other party may be able to claim ownership to a portion of the property or there may be unknown encroachments.  

10. Undiscovered will

When a property owner dies with no apparent will or heir, the state may sell his or her assets, including the home. When such a home is purchased the new homeowner assume their rights as owner. However, even years later, the deceased owner's will may come to light and the rights to the property may be seriously jeopardized.

Title Insurance Saved the Day!

 

Scenario #1: “My Ex didn’t pay her bills!”
 

Imagine a scenario where a husband and wife have recently divorced and the situation is barely cordial.  The husband and wife once owned a home together but through the course of the divorce the wife was no longer in title. 

At the same time, a young couple looking for their forever home and a place to raise their growing family fell in love with the beautiful center hall colonial and immediately put in an offer.

The Seller is the recently divorced man who is trying to sell his home a few months post-divorce.  He was happy to be selling to the young couple and accepted their offer.  The buyers quickly found an attorney and ordered a title search of the property.  
 

The title search revealed that unbeknownst to the Seller, his ex-wife accrued multiple judgments against her while she was in title. She has now been out of title for a few months and the judgments are now a lien against the property. 

The Seller had no idea about these judgments and without title insurance he never would have searched to see if anything like that existed.  If the buyers did not have a title search done those liens against the property would have been against their new home. 

The title company worked with the seller and his attorney to resolve the issues prior to closing so that the property can be sold free of any encumbrances.  The Seller was relieved that all of the matters were resolved and wished the new family years of happiness in their new home.  

 

 

Scenario #2: “Wait, that's not the right mortgage!”

In this scenario, the Seller owns a home in Westchester County and an Apartment in New York City. The Seller has a mortgage against both properties with the same bank.

The Seller decides that he wants to sell his home in Westchester and live completely in his city apartment when he is in New York.  So he sells his Westchester house.
 
The bank accidentally sends the wrong payoff to closing resulting in the mortgage on the NYC property to be paid off at closing instead of the Westchester mortgage. 

Without title insurance the buyer would have just bought a house encumbered by another persons mortgage. 

Post-closing the title company works diligently with all parties to remove the payoff from the NYC property and get the Westchester mortgage paid off. 

The buyer now owns the home free and clear of the seller’s obligations.