REAL PROPERTY TITLE PROBLEMS AND YOUR TITLE INSURANCE POLICY

by John Frederick “Fred” Kempf, Jr.

Imagine you are fixing up your new property when you receive a letter telling you there is a lien against the property you did not know about, or someone else claims to own part or all of it. Worse still, what happens if you receive papers naming you in a lawsuit involving one of these claims. For many of us, our real property may be our biggest assets. In my work as a real estate attorney, I am often asked by private owners, lenders and title insurance companies to assist with a wide variety of issues people run into with title to their property. Sometimes they find there is an unexpected lien or easement, or that someone else claims to own part or all of their property. When that happens, what does a landowner do? If we have purchased a title insurance policy when we bought the property, that may be the next place we want to look for help.

What Is A Title Policy, And What Does It Cover? 

Title insurance is a bit like car insurance – you don’t need it until you do, and then it is good to have it. A title insurance policy is a policy of insurance against unforeseen defects in the title to one’s property, and challenges to the title. Title policies are insurance policies where the title insurer is willing to risk coverage on a number of situations that an owner would not necessarily be protected on if they only obtained an attorney’s title opinion. The two most common types are an owner’s title policy, which insures the owner against loss, and a lender’s title policy, which insures the buyer’s mortgage lender against loss. Typically, an owner buys its policy and at the same closing, the buyer pays for its lender to obtain the lender’s policy on its mortgage for a small cost increase. These policies protect against title defect claims that were not envisioned by the owner as of the time of Closing. Perhaps the two biggest benefits are that such policies are designed to protect against a loss of the title to our property, and to provide a legal defense against adverse claims should they arise. It insures the owner against risks that another may challenge their “marketable title” to their property, subject to whatever exceptions appear in the policy. Exceptions from that title coverage may include such things as easements or roadways which are defined in the public land records, or things that the policy does not cover (such as oil, gas or mineral rights below the surface).

In most real estate transactions in more populated areas, title companies have largely replaced the private attorney’s title opinion which is still sometimes found in less populated counties in the State. For a title policy to be issued, the abstract still has to be updated, an attorney (for the title insurance company) still has to examine it and give a title opinion on the title, but in addition, it also includes a policy of insurance to protect the buyer from financial losses from title defects, including some which may not be shown in the public land records, or the cost of having to hire lawyers to defend and protect their ownership against those title defects or claims.

These policies do NOT cover such things as defects in the roof, the inside of the house, plumbing issues, foundation cracks, or someone getting hurt on the property, etc. It insures against a threatened loss of title to the property. When we look at the one-time cost of such a policy, we realize it was not intended to cover every type of problem a new property could have, but only protection of the title. The policy lists the things it does not cover, or the “title exceptions” and other exclusions. The exceptions that are not covered are listed in both the “title commitment” which is issued prior to Closing, and in a section of the title policy itself, issued after Closing. Aside from exceptions for such things as easements and roadways reflected in the public records, it will have exclusions from coverage for such things as title issues caused or created by the buyer itself, or title problems which are first created after the time the title policy is issued.

What Do I Do If A Title Problem Arises? 

If we are confronted with a title problem, the owner may need to consult with their own attorney to see if it is a real threat to their title, and to consider if it is likely to be covered by the title policy. If so, the owner or their attorney should give the title insurance company written notice the owner is making a claim under the title policy, and request that the title company defend the claim. At that point, a title company will typically investigate the claim, and assuming it is within the scope of the policy, will either take action to resolve the problem itself, or engage a local attorney to address the title problem. While the insured will need to be a constant part of the process, the title company and its attorney will typically carry the “heavy lifting” in defending against the adverse title claim. When a title company engages local counsel to defend the claim, they typically select attorneys who have demonstrated expertise in the field of title and real estate law, and may have a leg up on getting these title issues resolved more efficiently and effectively. That saves the owner from having to research and guess at who might be a good attorney to address such issues. It also saves the owner from having to bear the cost of such legal services to the extent of the challenge to the owner’s title.

Tips For Owners And Lenders On Title Insurance Policies.

1.  Before the day you close on the property, ask the title company who is closing it to provide you with a copy of the “title commitment”, which shows any current title requirements that it is telling the seller to correct before you close, and any items that will be accepted from the coverage under the policy. Typically, the title commitment will refer only to the names and books and pages of documents, but not their contents. If you want to review those before you close, you can ask the title company to provide you with copies of the “source documents” for those items listed in any title requirements or exceptions listed in the commitment. At least you will know what to expect the condition of title will be once you close.

2. If you receive notice of an adverse claim against your property, review the title policy to see if it covers the type of title issue with which you have been confronted.

3. If so, give the title insurance company written notice of the claim, and give them copies of any documents which have been provided to you relating to that claim. Also, provide them with information about the title policy number.

4. Once the title insurance company is satisfied the issue is covered, they will confirm they have accepted your claim, and should step in to address the claim with your cooperation. Until that time, act promptly. You should protect yourself from letting anything bad happen to your property or your claim. If you have been served with a lawsuit, and there is a deadline for you to respond, waiting until after that deadline passes to respond in the lawsuit or notify the title company could result in a serious risk to your property and any title insurance coverage you may have. Once the title company accepts the claim, they will defend any legal proceedings as to your title, and will be looking for solutions to protect and defend the title to your property from such adverse claims.

We hope when you buy your next property, you end up with a good and marketable title, subject only to easements or mortgages you expected to be there. If you should end up with issues affecting your title, and you feel you need an attorney to assist you, that is one of the services I and my firm provide. If we can assist, I can be reached at (405) 235-8783, or by email at jfkempf@andrewsdavis.com.


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