We have all heard the Allstate slogan “you are in good hands with Allstate” which we understand is insurance to protect your car or home in case of a claim due to an accident or fire. But what about title insurance? I insist that my clients obtain this prior to closing on a home purchase. When would you call the insurance company to place a claim on this type of policy? This nolo.com article explains the circumstances when this may occur.
Title insurance is a type of insurance that homeowners buy (usually at the insistence of their lender), to protect them against previously undiscovered defects in title. For example, a neighbor may show up claiming a “right of way” allowing him or her to cross the property, or someone may claim that your land is actually a part of that person’s inheritance.
Most such issues should have been disclosed at the time you bought the property. If, for example, a contractor had filed a mechanics’ lien to secure the prior property owner’s payment for work, the lien might turn up in preparation for closing – in some cases, even if the amount due had already been paid. In this situation, the home seller would need to have had the contractor file an affidavit with the county clerk or registry of deeds documenting the payment and releasing the lien.
Some title defects, however, are difficult to discover, or appear only after you have purchased the property. The home seller may, for example, have had no idea that a previous owner hadn’t really owned the property outright (perhaps a divorced spouse got half, but the other spouse sold the whole), or that a signature on a recorded document was forged. It’s for situations like this that title insurance was created.
Just about everyone who buys a home or vacant property buys title insurance as well, so it’s likely you do, too. No lending institution subject to state or federal regulation, or that has a state or federal charter, will provide mortgage, equity line, or other financing secured by real property without title insurance in place to protect its investment. Most people, when they buy a house or a vacant piece of land with bank financing, “piggy back” on the bank’s title insurance by paying a small fee in order to be listed as an insured.
And, even when a financial institution is not involved, most prudent property owners will have secured some form of title insurance.
One especially good thing about having title insurance is that, in the course of preparing your policy, your title insurer (or your attorney or your bank’s attorney) will have done a title search. That should have turned up the more easily discovered title issues before the closing, which would have been held up until those issues were dealt with. Again, however, some title concerns may have gone unnoticed.
Common title issues faced by homeowners include:
- undiscovered encumbrances like mechanics’ liens or mortgages that have not been discharged (for example, when a prior owner neglects to record a release showing that a loan from a relative has been paid in full)
- unknown or undiscovered easements, rights of way, and other rights that impinge on your sole ownership and use of your land (for example, if a neighbor’s right to cross your land to reach lake frontage appears in the neighbor’s deed, but is not mentioned in yours)
- out-and-out forgeries or impersonations of owners or others who might have an interest in your property (a prior owner forged the signature of a contractor on a discharge of a mechanics lien, when, in fact, the contractor was never paid, for example)
- perimeter, road frontage, and other boundary disputes (for example, your neighbors presents you with a survey of their land that shows, wrongly, that they own a portion of your land)
- simple clerical errors in public records like tax and other lien discharges (as when the state neglects to record a discharge of a fully paid state income tax deficiency), and
- missing heirs and claims made under previously undiscovered wills (for instance, someone claims to own a complete or partial interest in your property under a will that was never properly processed through a probate court).
Unless you “run the title” on your property periodically – and hardly anyone does – you can’t know if one of the above types of title defects, or some even more unusual defect, has appeared until someone asserts a claim based on it. They are likely to do so by sending you a letter or even beginning a lawsuit. If they do, it’s definitely a good time to call your title insurance company.
If the claimed defect is covered by your title insurance policy, your title insurance company is bound to act to ensure that you have good title to your own property. Where the claim is unfounded (for instance, your neighbors’ so-called survey is a fabrication), the title insurance company may settle the claim, defend you in court, or take any other measures to get the claim dismissed.
If the claim is valid (notwithstanding the prior owner’s forgery, the contractor still deserves to be paid, for instance), the title insurance may negotiate a settlement of the claim and, perhaps, bring suit against the former owner.
When you call (or email or otherwise contact) your title insurance company, you will likely be asked to file a claim. Although title issues themselves can seem esoteric and abstract, filing a claim is usually straightforward. National title insurance firms have printed forms available for property owners and for lenders; the same forms are usually available online as well.
In any event, your claim should include your name, together with contact information, the legal description of your property (the description that is included in the deed), and any perimeter or other surveys of the property, and a summary of the title issue.
Include as much supporting documentation as you can muster, for example, if the claim involves a boundary dispute, a copy of your perimeter survey and a copy of your neighbor’s. Including a copy of the title insurance policy itself, although you might think it would be unnecessary, will speed things up.