If you are about to purchase a home, or if you have ever purchased a home, you have undoubtedly been introduced to the concept of title insurance. Essentially, title insurance serves to make sure that there are no title defects, judgments, and/or liens against the property. While it is undeniable that title insurance is crucial and required when you purchase a home, the way it works is somewhat different than any other insurance you may have ever purchased.
First, you only purchase title insurance when you purchase a home. If you are purchasing a home and you have a mortgage, you will be required to obtain a lender’s policy and you will have the option to purchase an owner’s policy. The lender’s policy will insure the title up to the amount of the loan, and the owner’s policy will insure up to the amount of the purchase price of the property. Although technically optional, most buyers are strongly recommended to purchase the owner’s policy so that they have full title insurance up to the purchase price. This makes even more sense if a buyer is putting down a large down payment.
If you are refinancing, your mortgage lender will require that you pay for a lender’s policy insuring up to the amount of the new refinanced mortgage amount.
Unlike automobile insurance or homeowners’ insurance, you only need to purchase title insurance once and then it lasts for the duration that you own your home provided that you do not change the deed or refinance the mortgage. As such, it is very important that you keep your title policy in a very safe place with your deed as you may need it if you ever sell or refinance your property in the future.
Ultimately, title insurance will encompass certain protections with regard to your ownership interest in the property. Specifically, title insurance will protect you if there are any liens, judgments, or other more intricate title defects that exist at the time that you purchase the home, but were not resolved by the time you close title on your property. It is important to note, however, that when your title insurance company does its search, there may be certain defects or items that are noted which many times can be minor things for which you will still receive title insurance albeit with these items noted as exceptions to same. One such example is a slight encroachment of a neighboring fence. If the survey reveals that the encroachment exists, there will be an exception to the title with regard to the same. What this means is that if someone ever contests the placement of the fence, you will be barred from making a title insurance claim because the encroachment of that fence was already noted as an exception to your title insurance policy.
Nevertheless, there are major items that bar a title insurance policy from being issued unless such items are resolved. Simply, an example of the same would be a judgment or lien on the property against the predecessor owner or seller whereby such debt now attaches to the Property. As such, it is critical for that judgment to be identified, and if not already satisfied evidenced by a “Warrant to Satisfy Judgment” or disposed of by a Bankruptcy order, such judgment must be paid from the proceeds received at closing before the seller can receive any money. If, however, a title insurance company fails to pick up such a judgment, then you – as the new owner who has a title insurance policy – would potentially have a title insurance claim. You would have the right to demand from your title insurance company coverage to address and ultimately pay for the judgment that was undetected when the title insurance policy was issued to you.
Finally, it’s how a claim is processed that is also a slight departure from typical insurance policies. Simply, just because there may have been an issue with your title and you have title insurance does not necessarily mean that your title insurance company will automatically jump in to fix it or pay. Specifically, title insurance companies require that they are placed on formal notice of an adversarial action against the property before the title insurance can be triggered. Oddly, it would not even be enough for the title insurance company to receive notice directly from a lien or judgment holder, but they would need to be placed on notice by you directly. This means that when you receive notice, you are then supposed to forward the same to your title insurance company with a specific demand for the title insurance company to defend and indemnify you pursuant to its title insurance policy. Therefore, many times the title insurance company will wait until a lawsuit is filed against you for foreclosure on the judgment or lien, or – at the very least – you receive and forward to them a notice of claim with the imminent threat of such litigation before the title insurance company would jump in to defend you with regard to such a claim.
If this sounds complex, it is. However, with good representation and legal counsel, you can easily navigate the specific idiosyncrasies of title insurance both if you possess a judgment against a property and you realize that the property has been sold without anyone paying your judgment – or conversely – you are placed on notice of a judgment or lien against your property and you have title insurance which should have already resolved same. At Abdou Law Offices, we deal with these complex real estate matters and frequently litigate such claims to successful conclusions.
[*All materials have been prepared for general information purposes only to permit you to learn more about our firm, our services and the experience of our attorneys. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.]