September 27, 2018
What’s the Worst that Could Happen?—Hazards of Not Getting Title Insurance
When a client considers going without an Owner’s Policy of title insurance, it almost makes my hair curl. Life is full of all kinds of unpredictable situations, and that can go for property law, too, despite your lawyer’s best efforts. The cost of a policy is a fraction of your new property’s worth and you only pay it one time (at closing) with no reoccurring premiums. The potential for the title being challenged in court may be fairly low—but should it happen, the costs to you would be large indeed.
Set aside just the costs of the court case itself—which can be considerable—you could lose your property and everything you paid to purchase it. Even if the property isn’t seized and re-titled, you could have to pay out some portion of the property’s cost—which would almost certainly be more than the one-time purchase price of a good title insurance policy.
I urge them, in other words, to consider just how difficult things can get for people who decline to purchase a plan.
In other posts, I’ve detailed a situation that arose on the heels of the foreclosure boom during the Great Recession in Massachusetts. The gist of it: people who bought homes from lenders who had foreclosed on properties to which they had not in fact been able to prove ownership at the time of seizure were forced to make it up to the people who had been foreclosed on (U.S. Bank v. Ibanez). Even the lenders, in that case, thought they were right in foreclosing when they did. But the title they passed forward was rendered defective by a procedural hiccup in the past. The new owners—or rather those who did not buy title insurance—were the worse off for it.
Maybe you aren’t buying the property from a lender who has foreclosed on it recently. But, what about in the past? Several previous owners in the past? It can be hard to know.
Malfeasance and Accident
Believe it or not, some people try to sell homes they don’t own. From time to time a property’s rental inhabitant poses as a seller.
Or maybe the previous owner bought the place from a single person, not realizing that the seller’s former spouse had a legal co-ownership relationship still in place.
Or a seller has inherited the property from a Will that is later shown to have been superseded, and they didn’t actually own the house even though they thought they did.
And what about partial-rights? Sometimes people or agencies file liens against the house, which means they are legally entitled some of the proceeds made in the sale of the property by which to settle a debt the seller owed them (like contractor’s fees, taxes, child support, and so on). These liens are attached to the property, not the person.
If any of these situations should turn out to be the case after the closing, your title insurance policy will step in to solve the problem for you, usually at no further cost.
Of course, the first step in ensuring you won’t encounter any of these problems is to get in touch with an experienced closing firm, like me and my associates here at Topouzis & Associates, P.C., to do a thorough title search. Clear title on its own is a calming thing. But even the most thorough title search can fail to reveal issues hiding in the nooks and crannies of a property’s history. A title insurance policy handles any lurking troubles.