My perspective on title insurance differs from almost everybody else because I have never worked in the title insurance business. Instead, I have prosecuted real estate fraud cases as a deputy district attorney and litigated them as a trial attorney since 2003, and in most of these cases, the title insurance policies came into play. Every homebuyer MUST BUY a Homeowner’s Policy of Title Insurance for the reasons I will now explain.
When you buy a home, typically you buy it from a person that you don’t know personally, and typically you have no personal knowledge about the history of the home. So…how do you know if the seller even has the right to sell you the home? Is the deed worth the paper it is printed on? Well, in the United States, we shift this risk to title insurance companies. They research the title history of the home you are buying, and if they are confident that the seller can sell it to you, then they will allow you to buy title insurance from them. If they turn out to be wrong, then they are on the hook for the financial loss you suffer as a result. Sounds pretty important, right? That’s because it is.
First, the basic coverage provided by the Owner’s Policy of Title Insurance.
The core coverage provided by title insurance, which is offered by both the Owner’s Policy of Title Insurance and the Homeowner’s Policy of Title Insurance protects against defects in title that existed prior to the transfer of ownership to them from the seller. These include:
- Someone else other than the purported seller owns a recorded interest in the property;
- During the closing process, a document is not properly signed, acknowledged or delivered, and as a result, you do not receive a complete ownership interest in the property;
- One of the documents in the title history of the property was obtained as a result of forgery, fraud, duress, incompetency, incapacity or false impersonation;
- There is an undiscovered cloud on title that rendered it unmarketable; and
- It turns out there is no way to access the property without trespassing on someone else’s property.
You can see how any one of these issues could ruin your day if you discover them after you pay the seller a lot of money.
Consider this example written by Wade Vander Molen (his LinkedIn Profile) at Stewart Title in his article, “3 Scenarios Where It’s Crucial to Possess an Owner’s Title Insurance Policy.”
Someone knocks on your door and says she is the wife of the seller who sold you the house, and she wants to know why you are in her house. You then find out that the woman who signed your deed was, in fact, not the seller’s wife but his girlfriend. You have several immediate problems: Fraud was committed in the sale of the property, and you do not have good title to your home; the person is probably due money from the sale that has already been given to the husband.
I’d go even further and say that, not only can the defrauded wife demand payment, she would likely have a solid case to take the home back from you.
According to Investopedia, the most common defects that were not discovered before the sale and that lead to title claims are:
- Back taxes;
- Other liens; and
- Conflict wills.
None of these issues are your problem if you have appropriate title insurance.
Expanded coverage provided by the Homeowner’s Policy of Title Insurance.
Although the name of a Homeowner’s Policy of Title Insurance is not much different than an Owner’s Policy of Title Insurance, the homeowner’s policy covers much more and provides expansive protection. Consider these examples:
- Your new neighbor has their property boundaries officially surveyed, and it turns out one of your residential buildings was constructed on their land. If that building must be torn down, the homeowner’s policy has got you covered.
- After you move in, the friendly representative from the homeowner’s association informs you that the previous owner never paid off the punitive lien that the HOA put on the property because he left his holiday lights up all year long. Fortunately, the homeowner’s policy covers this too.
There are about a dozen additional situations covered by the expanded policy, but my favorite is the coverage for title documents that were forged AFTER you purchased the property. This type of real estate fraud is my wheelhouse, my bailiwick, my area of expertise. These are the types of cases I have handled since 2003.
Does Title Insurance Cover Deed Fraud that Happens AFTER I Purchase the Property? Probably.
Imagine you purchase a house as a second home, vacation home or vacation rental, and you are clever enough to insist on the purchase of a Homeowner’s Policy of Title Insurance. For several years, everything is going well. You are receiving a ton of cashflow from people renting your property through AirBNB and VRBO, but then something strange happens. Your property manager tells you that someone has moved into the property and changed the locks!
When you try to talk with these ostensible trespassers, they simply slam the door in your face, so you bring the police. When the police arrive, the people living in your house pull out a copy of the deed that shows you sold them your house. When you try to explain that the signature is a forgery, the police simply tell you to get a lawyer.
After some investigation, you discover that someone impersonated you and sold your house to unsuspecting buyers. Luckily for you, your Homeowner’s Policy of Title Insurance also covers your legal fees to recover your property, so you immediately make a claim.
If you have an older title insurance policy, you might not have covered. First American Title Company started covering deed fraud like this in 1997, and the other title insurance companies followed suit in 1999.
What doesn’t your title policy do?
Even though you purchased a title insurance policy, the title insurance carrier will not monitor your property title for fraudulent deeds. That’s your job.
This type of deed fraud is growing crime statistic. (See my other article, “Can Someone Steal Your Home Title?”) One report discovered that in Brooklyn alone, there were 3000 reports of title theft between 2015 and 2019. In a recent news report, a Dallas County prosecutor said his office has received over 90 reports of this crime in the last couple years. After a case of deed fraud appeared in the news in Miami, the police chief told reporters that they had received 50 reports as a result of the coverage. I estimate that as many as 10,000 homeowners make valid claims of title fraud to title insurance companies every single year.
The sooner you can catch deed fraud, the easier it will be to unwind. Before a con artist can take a mortgage out against your property or sell it to unsuspecting buyers, they usually must forge a deed that transfers ownership into their name or into a name that they control. Only then can they go to a mortgage lender or to potential buyers, so if you can stop them after the first step, your lawyer can fix the situation more easily. Time is of the essence.
Unless you have some easy method to check your title every few days, then you need a title monitoring service like TitleShield™ or Home Title Lock. Let them check for fraudulent deeds and notify you if one appears.
– David Fleck, CEO