Title Insurance: Examples of Problems and Advice

What is title insurance and why should any buyer get it when purchasing a home (single family, townhouse, condo, apartment, or whatever format your home purchase takes)? Doesn't the attorney or settlement company handling the closing see to it that you have a clear title? Isn't this just another way for someone to siphon a few coins off a real estate transaction?
Title Insurance

Title insurance prevents the property owner from suffering financial loss if, at any time during his ownership of the property, someone comes along who can show that they have full, or partial, ownership of the property instead. Every mortgage lender I'm aware of requires title insurance be purchased to cover the amount of the mortgage. They're not in business to lose money.

A careful title search is done at the time property changes hands. On rare occasions mistakes are made anyway. Property can change hands in a number of ways including by deed, by will and by court action. Typically, these proceedings are recorded in different places. Searching the history of ownership to be sure nothing has fallen through the cracks is a tedious job that requires alertness, intelligence, and skill. Mistakes can happen. Fortunately they don't occur very often, but they do happen.

A mistake of this kind happened a few years ago to some elderly friends of mine who owned a 136 acre parcel of farmland in Stafford County, Virginia. It had been the home place, the family farm. The family had 10 children who inherited it on the death of their parents. After they became adults, one child, a daughter, bought out the interests of each of her siblings. At her death, the property was conveyed by will to her three sons. One of her sons had died without a will which resulted in his widow and their 3 children gaining ownership of his one third interest per state law.

My friend is the widow. She and her brothers-in-law wanted to sell the property. The area had begun to develop and each of the three of them had significant health problems, so they decided an influx of cash would be welcome. The property was master planned, but not yet zoned, for multi-family use. Being subject to a rezoning complicated the sale, but the price reflected the change in use. When the title work was done, it was discovered that the heir of one of the 10 children was still shown as a ten percent owner of the property. Neither my friend nor her brothers-in-law had title insurance. If the heir would not sign a "quit claim deed," they were stuck with an additional owner.

Actually, this happened not once, but twice with the same family group. In one case, the aunt remembered that her parent had been bought out and signed the quit claim deed. In the other case, a cousin either did not know or refused to acknowledge what had happened and ended up getting ten per cent of the proceeds.

My suggestion is that you purchase title insurance because lack of it could prove devastating. You make a down payment. You make monthly payments, an increasing portion of which is reducing the amount of principal owed. It is very likely that the value of your property will go up over the years. As time passes, these elements are likely to result in your home equity's being your largest asset. Just how devastating would it be if you eventually discovered that someone else owned what you'd always thought was your home?

Do yourself a favor. When you buy a home, buy title insurance.

What if the home you're purchasing is new? No one else could have owned it before you, right? Well, someone owned the land. As a matter of fact, the builder/developer probably had a construction loan on it, and they're often released in groups of 10 lots at a time, so it's possible a bank has an interest in your title. What happens if the bank goes bankrupt and you're left trying to get a release from a trustee in bankruptcy?

Honestly, I'm not making this stuff up. I've seen this kind of thing happen. Do yourself a favor. Buy title insurance.


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