Q. What could happen if I don’t purchase title insurance?
A. There are many problems that may arise after your closing. Some may be minor,  but some are major. Here a few scenarios of real life situations that resulted from not insuring a title when purchasing property:

Scenario One:
The Clerk admitted to record a List of Heirs showing the that someone died without a will and the only heir was a sister-in-law. Turns out, per the obituary, the decedent was actually survived by five siblings; the sister-in-law was the widow of one of the brothers of the decedent. The sister-in-law conveyed to a purchaser and title insurance was issued for the transaction, which was good thing for the buyer because the surviving five siblings later properly claimed that a false List of Heirs was recorded and made a claim to the property.

Scenario Two:
The insured owner bought the property from a foreclosure sale. The prior owner sued to quiet title six years later. Basically, the prior owners had a rental property. In 2006, one of the prior owners forged the other’s name on a deed (apparently with his consent) and conveys to a third party straw buyer. Straw buyer takes out purchase money deed of trust that pays off the prior owners’ deed of trust, and then the straw buyer strategically defaults. Property goes into foreclosure and new insured owner buys. The former owner whose signature was forged sues in 2012. That’s right – six years later. Insured owner tenders a claim to the title company, which retains an attorney for his defense.

Scenario Three:
Insured owner bought out of a large estate. The second wife of the man whose estate sold the property was executor and thought she paid all estate taxes. Turns out there was a life insurance policy from his former employer that was supposed to be cancelled many years before (but hadn’t been) and the first wife was the beneficiary of the insurance policy. The monies paid by the insurance policy were considered part of the estate and therefore taxes were due. Wife #1 and Wife #2 apparently fought about it for years, with Wife #2 even getting a judgment against Wife #1. Meanwhile, on the eve of the 10 year statute of limitations, the IRS seizes the subject property. Insured owner tendered a claim to title company, which retained counsel to defend. After about a year of fighting with the IRS, title company prevailed and settled.

Scenario Four:
Story about the value of buying the enhanced Homeowner’s Policy: A woman bought a house with full finished basement – which was perfect because she had a special needs child and the kitchen would be perfect for the child. Adjacent neighbor sees too many cars in the driveway, calls the County to complain and the County comes out to investigate. County pokes around the whole house, then tells the woman that her basement was not permitted and she’d have to bring it all up to code. She tendered a claim to title company, which afforded coverage. Title Company ended up paying out her $25,000 cap under the policy.

Other Situations:

    • Title search missed an easement giving U.S. Forest Service a right of way, and giving former property owner timber rights on insured property.
    • Alleged heir of former owner claims that List of Heirs falsely omitted him and that he has a one-half interest in insured property
    • Suit by former owner alleging deed to current owner was forged.
    • VDOT asserts it is the owner of a portion of insured property.
    • Declaration of restrictive covenants not found during title search and not excepted to in policy. Covenants prohibit insured from installing a well which is needed for planned construction of improvements to the property.
    • Improvements of existing house and structures encroach onto adjacent lots owned by neighbor.
    • Seller claims unsubdivided lot was sold in error and has filed suit seeking reconveyance of the property.
    • Prior lender scheduled foreclosure sale of deed of trust missed in title search.
    • Adjacent property owners filed lawsuit alleging property rights stemming from 1936 ‘contract’ grants him easement and water rights on insured property.
    • Neighbor blocked access to easement serving insured property.

Q. What is title insurance?
A. Title insurance is a safeguard against loss due to unknown title defects on your property. The insurance is a protection from the hidden risks that could threaten a title even after the most careful title search.

Q. Who chooses the title insurance company?
A. The mortgage lender financing or refinancing selects the lenders insurance. However the homeowner selects the borrower’s title insurance company.

Q. What is a title defect?
A. The list of defects can include fraud, false impersonation, forgery, undisclosed or missing heirs and mistakes in recording legal documents as well as misinterpretations of wills and deeds that are invalid or misrepresented. There could be an unsatisfied mortgage, lien, judgment or other recorded claim against the property. A defect could also take the form of a claim by a third party such as an unknown heir or a prior owner whose deed was transferred by forgery or fraud.

Q. What is a Title Search?
A. The title to your home is the legal proof you own it. During a real estate transaction the property’s history is reviewed by a title search and verifies property ownership. The title search will reveal liens, claims, errors, easements, debts and any other recorded restrictions on the property. A title search is required to prove title integrity, insurability and that ownership can be transferred.

Q. Does the Lender’s Title Insurance protect me?
A. No, it only protects lender if there is future discovered defect in the title during your ownership. You personally have no protection and would lose both your property and your equity in the property and the possibility of incurring unpaid liens, penalties and legal expenses attached to the property. For owners protection against unknown title defects and the unknown expense owners title insurance is available for a one time premium due at closing.