Did you know there’s a chance that the home you purchased may not actually belong to you? It’s a chilling thought, but true. Unfortunately, there are circumstances that can give others a legal stake in your property.
Title problems can surface unexpectedly, wreak havoc on your finances and even force you out of your home with little recourse for recovering lost funds. But if you invest in title insurance when you purchase your home, your story doesn’t have to end in horror. Read on to learn how title problems can threaten your property rights, which ones are considered common and how title insurance protects your property interests.
How can someone else have an adverse claim to my property?
Title is the legal right to, or ownership of, real property. However, those property rights can be limited in certain circumstances.
For example, utility easements allow utility companies access to certain portions of private property to manage utility infrastructure. Another circumstance is when a property owner fails to make a required payment, like property tax or a mortgage. Government entities can place a lien on the property and if the lien is ignored long enough, the government can take your home through the foreclosure process. Similarly, banks can foreclose on a property if the borrower defaults on their mortgage loan.
How do I know if my property has title problems?
When a seller accepts a buyer’s offer to purchase a home, a title company is enlisted to perform a title search as part of the closing process. This extensive search and examination of public records identifies chain of title—a historical account of who owned the property. It also seeks to uncover any title problems, including claims or liens against the property, that need to be resolved before the sale can proceed.
How common are title problems?
Title problems (“defects”) are relatively common. Some are due to clerical errors that can be corrected before transferring ownership, but you can’t fix what you can’t find. Chains of title can go back hundreds of years, during which time documents can be lost, destroyed, or never filed. If there is a break in the chain of title or other title issues come to light that were not revealed when the title search was conducted, others might have a right to challenge your ownership of the property. Purchasing title insurance is a great way to protect your investment from the unexpected.
What are the most common title problems?
1. Errors in public records. These are often clerical or filing errors affecting the deed or land survey and can be costly to amend.
2. Fraud / forgery. These cases involve false impersonation and forgery of a previous owner’s signature on a deed, which can lead to ownership being contested.
3. Undiscovered liens. A judgment lien is a legal claim that can attach to real property, such as a home, that gives the creditor an interest in the property. They can be levied for things like outstanding real estate taxes or assessments, credit card bills, mortgages, child support, spousal support, or unpaid contractors (mechanic’s lien). A preexisting judgment lien discovered after the sale of the home remains a lien on the property. The lien can be problematic for the current property owner.
4. Illegal deeds. If a prior deed was executed by someone who did not have the legal right to transfer title – like a minor or someone with diminished capacity – ownership can be contested.
5. Undiscovered wills / missing heirs. If a homeowner dies without leaving a will, the will is not probated, or heirs are missing or unknown at their time of death, ownership can be contested.
6. Boundary/survey disputes. When your land survey shows different boundaries than your neighbors’ surveys, it can create boundary disputes that can be expensive to rectify.
7. Unknown easements / undiscovered encumbrances. Third parties are granted a legal right to access or use a property for a specific purpose, which can affect the owner’s right to possess the land.
8. Unmarketable title. This term refers to a property that has substantial title defects, is involved in ongoing litigation, or is burdened by rules that narrowly define how it can be used, making it hard to sell.
How can title insurance protect me?
Purchasing title insurance does not mean you will never encounter a title problem, but it does protect you from financial loss arising from covered title defects. An owner’s policy (“standard coverage”) protects you from undiscovered title problems that occurred in the past, while a Enhanced policy extends this coverage to certain limited title problems that could arise in the future.
The one-time cost of title insurance:
- Provides coverage for as long as you or your heirs own the property.
- Protects you from the costs, attorneys’ fees and expenses of defending against any matter insured by the policy. According to the American Land Title Association, the title industry spent over $476 million* defending the property rights of its policyholders and compensating their losses due to covered title defects in 2021.
- Protects you from financial loss, if you decide to sell your property and the title search reveals a covered defect in your property’s title.
For many homeowners, their property is their largest investment — and that’s well worth protecting from undiscovered title problems that could haunt you or your family in the future.