Over the past few years I have been involved in hundreds of real estate transactions but only recently have I given thought to the importance of title insurance. I knew in theory that the possibility existed for an old title issue to crop up and a claim made on the policy, but really never gave it much thought. In fact, I’m sure that over the last few years that at least a couple of times I’ve opted to not buy a policy, just assuming it wasn’t worth the money. I know better now. This year alone I’ve been forced to file separate claims on three different title policies.
Title insurance is designed to protect an owner from unknown claims against a property that may surface after the property has been purchased.
Some of the more common title issues that arise include:
- Foreclosure Mistakes: Title may have been transferred through a foreclosure sale, but certain statutes may not have been met, thus nullifying the rightful transfer of title.
- Forgery and/or Fraud: This occurs when someone fraudulently executes a document at some point in the chain of title.
- Wills in the Chain of Title: A mistake during the probate process for a previous owner that overlooked another person’s rightful claim to the property.
- Incorrect Legal Descriptions: Errors in the proper written or technical description of a property.
- Problems with Public Records: This may be any number of issues where claims or tax data have not been recorded properly in the public record.
- Liens: This category of liens can be anything from mechanics or utility liens to federal and state tax liens incurred from previous owners.
In all three of my title claim experiences this year, unbeknown to me, previous water bills had not been satisfied when I purchased the foreclosed properties from the bank. Luckily, all three of these properties had title policies, but the unpaid water bills were not discovered until I started the process to sell the properties and the closing attorney discovered the issues.
Through all this I’ve learned that it’s not uncommon for big firm attorneys who handle a large volume of REO foreclosures to do a less than adequate job running title on these properties. For investors who are buying foreclosed or short-sale properties, it is critically important to protect one’s self from unknown title issues that could arise after the completed purchase. For a one-time premium payment of around $2.00-$5.00 for every $1,000 of purchase price, you can be covered (this varies by state).
As a last bit of advice, I’d also recommend that if the paid policy is reflected on the HUD Settlement Statement, you don’t walk out of the closing office without the title policy in hand. I’ve actually heard of instances where a title policy has been paid, but not delivered at closing. When a claim was made later against the policy, however, the issuing attorney actually “weaseled” out of policy coverage and the owner was left holding the bag for the title claim.
Bottom line, investors need to be vigilant in protecting their investments. Making sure you have an accurate and legal title policy in hand when you purchase a property is one VERY important way to insure this.