Title insurance is the application of the principles of insurance to risks which are present in all real estate transactions. Two basic categories of risks inherent in all real estate transactions are hidden hazards, such as forgery, fraud, incompetency of grantors, unknown heirs and impersonation, which cannot be detected in the most diligent title examination; and human errors, such as the clerk of court’s improper indexing or recording of legal documents and mistakes in searching legal documents. Even a simple mistake in the recording of legal documents, improper execution of legal instruments, or the reappearance of undisclosed or missing heirs can results in the loss of your home. The following list gives some examples of such risks:
1. Forgery
2. Fraud in the execution of documents
3. Undue influence on a grantor of a deed
4. False impersonation by someone purporting to be the owner of the property
5. Errors in surveys
6. Undisclosed or missing heirs
7. Wills not properly probated
8. Misinterpretation of wills and trusts
9. Mental incompetence of a grantor of a deed
10. Transfer of title by a minor
11. Heirs born after the execution of a will
12. Incorrect legal descriptions
13. Non-delivery of deeds
14. Unsatisfied claims not shown on the record
15. Deeds executed under expired or false powers of attorney
16. Confusion due to similar or identical names
17. Dower or courtesy rights of spouses of former owners
18. Incorrect indexing of the land records
19. Clerical errors in recording legal documents
20. Delivery of deeds after the death of the Grantor
21. Signer lacks legal authority to sign on behalf of a business entity
22. Mechanics’ liens may be filed after closing
According to a recent study, fraud and forgery claims represent 21% of the total dollars spent by title insurers on claims expense and losses, with an average claim cost of over $143,000. Including fraud and forgery, the analysis found nearly 30% of title insurers’ losses and claims expenses arose from title problems not discoverable from a public records search. Fraud and forgery claims are on the rise due to threats from cybercrime, rising from 19% of total reported claims in the category of basic risks between 2013 and 2020 to 44% of claims within that category in 2022 alone.
Impersonation is a key component of most types of fraud, and seller impersonation is a growing concern in the real estate industry. This type of fraud occurs when fraudsters impersonate property owners to sell property that they do not own, using fake notary credentials or using real notary credentials without permission. Because fraudsters typically target non-owner-occupied properties, it can take months or years for the actual property owner to discover fraud. To address this risk, we only use vetted and insured mobile notary service providers when sellers are signing remotely, but title insurance is also important to protect you from this type of risk.
Title insurance, properly applied for, would protect against future losses caused by such events that happened in the past or prior to the issuance of the policy itself. An owner’s title insurance policy would protect the title while you own the property and would continue to protect you and your heirs on the warranties you would give upon the sale of your property. A mortgagee’s or lender’s title insurance policy protects only the lender, and only until the loan is paid off.
If you paid the one-time premium to purchase an owner’s title insurance policy, the title insurance company would defend your title without cost to you, and, if the title, or any part of it, should be other than as insured, you would be reimbursed, up to the face amount of the policy (typically the purchase price), for any financial loss incurred.
A title insurance policy may be applied for by the attorney handling your closing. The policy may list exceptions to certain matters that it will not insure over, such as easements for access, public highways, and utilities in the chain of title. The title insurance policy will cover the possibility of a mechanic’s lien being filed against the property, if the seller can provide the proper affidavits. However, in the event that the property you are purchasing is new construction, the title insurance company may require that a certain amount of time pass before it will fully cover mechanics’ liens.
It is important to note that the title insurance policy will cover the title only up to the face amount of the policy (typically the purchase price). If you make improvements to the property, those improvements will not be covered unless the amount of the title insurance policy is increased by making further application for coverage.
I recommend owner’s title insurance to my clients, and almost all commercial lenders require that borrowers acquire lender’s title insurance in transactions involving loans.
Our firm handles all kinds of real estate transactions, including residential and commercial purchases, refinances, construction loans. The Firm is also the owner of Floyd Title LLC, which is a title agency that provides title insurance underwriting services through Fidelity National Title Insurance Company. This allows us to order title insurance commitments and policies for clients much faster and thereby expedite the closing process. Contact us to assist you with your real estate transaction.
