Before we talk about types of claims, we should cover what title insurance is. Title insurance covers possible claims that occurred or stem from owners prior to the date the title is transferred to the buyer of the property, that wasn’t uncovered in the title search. There are two tiers, or levels, of coverage:
Standard Owner’s Policy protects you from:
- Claims arising from pre-policy errors or false legal descriptions.
- Fraud.
- Defective recording of documents.
- Liens or judgments filed against previous owners.
- Missing or undisclosed heirs.
- Undisclosed restrictions.
- Forgery.
- Omissions.
- Invalid Deeds.
An extended policy protects you from:
- Claims relating to off-record issues.
- Building permit violations.
- Bad home appraisals and inspections.
- Violation of local laws and adverse possession and property value fluctuation.
Okay, that’s all fine and good. What does that mean in layman’s terms? We’re glad you asked because we’re going to cover the most common claims:
Fraud and Forgery
In the past lawyers sent documents to clients without any way of verifying their identity. Maybe they weren’t the “John Smith” they’re pretending to be. Fraud and forgery are two of the most common issues related to titles.
Pre-existing Liens
Title policies are meant to protect us from financial loss that stems from pre-existing liens attached to the property. Say, the seller pays off the lien prior to selling the property, however the closing agent uses those funds to cover other expenses. The lien would be considered paid in full even if the closing process is over and the lien is paid at a later date.
Undisclosed Heirs
There’s more to this than just “undisclosed heirs”. There are also missing or conflicting wills. Say the property you closed on, got the title insurance to cover and all the rest is now the center of a legal battle. The legal battle is you, the new homeowner, and the grandson of the man who willed his home to his grandchildren but it had not come to light until three months after your closing.
Things the policy probably won’t cover you from, or that are “standard exceptions” to title insurance coverage:
- Property surveys.
- Taxes that may be missing from public records.
- Parties in possession claims not in public records.
- Unknown defects that do not come up during the title search.
- Defects that come after the policy is issued.
- Claims arising from failure by you to obey laws applicable to the property.
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