Title insurance was introduced in the late 19th Century to protect a property’s owner from claims associated with the chain of title. That means, for example, if someone, previously unknown, steps forward and says they own the property because their signature was forged, and they want their property back, the title insurance will activate to protect the new owner. Another example might be that a previous owner passed away, and the inheritors sold it. But the Will was not accurate or instructions were not executed properly, and someone in the deceased’s family challenges the sale. Again, the title insurance is there to protect the new owner. These examples are unlikely to occur, of course, but it brings us to other questions.
What does title insurance not cover?
Title insurance is based on searches of public record, so any potential problem that is not in public record would not be discovered and would not be covered. Here are some examples:-
- A problem that a survey would expose is not covered. Let us say a neighbor installs a fence between the two properties, but they put the fence a foot inside the subject property. A public records search would not discover the problem, but a surveyor would. Prospective owners can protect themselves by ordering a survey. Any problem like this stays the current owner’s problem, and would not be carried over to the new owner.
- Unrecorded mechanics liens are not covered. Let us say that, to get the highest price, the current owner remodels the kitchen and pays the contractor in full. The contractor fails to pay the cabinet supplier so, after a couple of months, the cabinet maker files a mechanics lien against the property. The lien doesn’t appear until after closing, so the problem falls on the new owner
- Another simple example is that of unpaid utility bills. An owner defaults on the mortgage and stops paying for electricity. The lender forecloses, the property is sold and the utility bills are lost in the mix. The new owner takes possession but the utility company refuses to turn the power on until the old bills are paid
There are ways for buyers to protect themselves. All buyers should seek advice on how best to do this because all situations are different. One way would be for the title insurance underwriter to order a lien search to see if there are any outstanding special assessments, or to make sure all utility bills have been paid. We always advise buyers to know their rights and responsibilities – and to seek advice from suitably qualified professionals.
Title insurance is a powerful instrument but it is not an all-encompassing one. If you have questions about title work, title insurance, as well as other real estate matters, please contact us and we will do all we can to help you. The least we will do is to direct you to the right professional.