Fraud and Forgery
Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an owner’s policy protects you financially through negotiation by the insurer with third-parties, payment for defending against an attack on the title as insured, and payment of valid claims.
Innocent buyers purchased a home site through a real estate company, accepting a notarized deed from the seller. After the purchase, another couple—the true owners of the property who lived in another city—initiated legal action to prove they actually owned the property. Because the innocent buyer purchased an owner’s policy for a one-time fee at closing, the title company provided a money settlement to protect against financial loss.
As it turned out, a forger spent time in advance at the local courthouse, searching the public records to locate property with out-of-town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling most contacts through an answering service. Also, the identity of the notary appearing on deeds was fictitious as well. Homeowners without this coverage would have lost their home.Unsuspecting Liens on New Homes
Construction of a new home raises special title problems for the owner. You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased. In addition, a builder may have failed to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property.
In Texas, a builder sold homes to first-time buyers. The builder, however, failed to pay property taxes and did not pay contractors for labor and materials. When the builder failed to pay its undisclosed debt, the creditors then instituted foreclosure proceedings or filed lawsuits against the homebuyers.
Because the deals were “seller financed,” the builder didn’t require the buyers to purchase title insurance, which would have protected the buyers. If the homeowners had purchased owner’s title insurance, they would have been protected against these potential problems. The insurance would have covered any legal fees involved in defending a claim.
Underground Utility Lines
After a months-long search, you finally find your family’s dream home—a safe neighborhood and great schools, and a big backyard for the swimming pool you plan to build. You move in and hire a contractor, but a few days into construction the contractor finds an underground utility line running right through the middle of your backyard. You check your owner’s policy and find out that the title search did not discover this easement.
If the homeowner purchased an owner’s policy, their title insurance company would pay to have the underground utility relocated so they could build their swimming pool.
REMINDER: For a one-fee, an owner’s policy provides protection for as long as you or your heirs on the property. In addition to protecting your investment, an owner’s policy also covers the legal fees and the cost of defending your property rights.
