Title insurance when purchasing from a trust

[Loren Howe]

I’m purchasing a property which is held in a trust with three sibling trustees. There is a copy of a document signed by all trustees which lets any one trustee independently sell property out of the trust. The selling trustee seems to be pushing for only one signature on the deed rather than all sibling trustees being aware of and consenting to the sale.

My concern is the off chance that: 1. Even if technically legal, could I later get dragged back into a dispute if unaware trustee siblings disagreed with the sale. 2. I suppose there is always an off chance that the copy of the separate document allowing sale by one trustee is simply photoshopped and fraudulent.

I will be getting title insurance on this cash purchase, and have made my attorney aware of my concerns. I haven’t gotten the terms of the title commitment yet. My attorney seemed to indicate title insurance will handle this issue and depending on what the title commitment says, there may be no need to insist on all three trustee signatures.

Is title insurance really an ironclad guarantee in these cases and am I worrying about something that will get resolved by the title company’s research and requirements prior to issuing a title commitment?  

[Peter Walther]

I think you're right to be concerned.  In this day and age getting multiple signatures should not be difficult and falsifying a document, particularly a copy, is not challenging.  If I was underwriting the transaction I might require something in writing from the other Trustees acknowledging sale and agreeing the signing Trustee's authority to convey the property.  I'd also make sure the closing agent is sure to make the proceeds check payable to the Trust and not the Trustee, but that's an aside.  It's also possible there's an addendum to the Trust changing that provision which contacting the other Trustee's should identify.

Assuming there's no exception in your title policy for problems with the Trustee's conveyance, if one of the other Trustee, or even a Beneficiary of the Trust, claims the signing Trustee either did not have authority to convey or exceeded their authority, the claim should be a covered matter.  However, a title policy is not a guarantee you have good title, only that if your title is challenged, for a covered matter, the insurer is obligated to either defend your title or pay your covered loss.  If a defense is provided and a court ultimately finds you don't have good title, you should then receive your covered loss.

In my experience, if I have a gut feeling something is not right, chances are I'm right.  Keep in mind, most title policies have an exception to coverage for matters which are not of record, not known to the insurer but known to the insured and not disclosed to the insurer IN WRITING before closing.  That means, let say I was contacted by someone who tells me to be careful when dealing with a seller because he and his partners have had a falling out and he's selling partnership property without authority, and you don't disclose this information, if there's a suit later, you may not have coverage.