While a dream home means different things to different people, most folks have this in common: imagining themselves secure and happy in a physical place. Homebuyers can be surprised to discover that something as comparatively small as, say, a piece of paper, can block them from realizing that vision. But the truth is that unforeseen circumstances can arise after the purchase of a home, calling into question the validity of a home’s title and, as a result, a homeowner’s rights to the property. The situations are known as “defects,” and single out errors in a home title. The person coming forth with the defect will make a claim, based on the circumstances of that defect, and in so doing kick off a legal process that can result in homeowners not only losing their property but all the money and time that they have invested in it.
While the type of defects are far-ranging, one simple truth stands clear: having title insurance can protect homeowners against any such loss
Here, we’ll explain how it’s possible for an unseen error in a home title to void ownership, and how title insurance can prevent this from happening.
Your Home, Your Title, Your Protection
The home title deed that homebuyers receive after closing on a property is extremely valuable. Not only does it confirm proper ownership, but it also represents the historical and legal records associated with that property—not to mention the hard work a homeowner undertakes to secure that real estate. Before closing on a home, title insurance companies will conduct a title search to ensure that the property doesn’t contain any defects. While companies endeavor to complete this process as thoroughly as possible, defects occasionally slip through the cracks. When this happens, homeowners risk losing not only their home but everything they’ve invested in it.
That’s where the owner’s title insurance comes in. Title insurance protects homeowners by backing up their financial investments and covering legal expenses if the case is taken up in court. As a one-time purchase made upon closing, title insurance is one of the most important items a homeowner can purchase, outside of the home itself. To illustrate the importance of purchasing title insurance, here’s a walkthrough of different types of defects that can occur with a title deed, and how title insurance is your best defense against such scenarios.
Common Claims Brought Against a Title Deed
Considering that defects arise after a title search, their “out of left field” nature is understandable. What’s perhaps unexpected is the wide range of circumstances that can cause a defect. In no particular order, we’ve compiled and categorized a list of scenarios that can (and have) transpired, resulting in a homeowner’s rights to their property being challenged. Common defects arrive in the form of:
- Forgery: Forgeries can take the form of forged original deeds, notaries, witness consent, mortgages, satisfactions or releases; as well by a family member without owner knowledge or consent. Purchasing a home from someone using a fake name or alias can also cause a defect.
- Beyond the grave information: Many times, undisclosed information about a deceased property owner will arise as a defect. A rediscovered will that alters the terms of the agreement, the misinterpretation of a will, or other matters related to a deceased owner all count. A deed affecting the property of a deceased person and that doesn’t join all heirs, arrives after the death of the previous owner without their consent, or follows the administration of a missing person who later reappears, also counts.
- Falsified power of attorney: When lawyers turn out to not be who they say they are, or to have an expired license, a defect can occur.
- An old flame: The divorced party of the previous owner can surface and claim ownership of a property.
- A legal misunderstanding: If the deed was wrapped up in a legal proceeding such as bankruptcy, receivership, probate, conservatorship, or divorce, then it can be rendered unauthorized. Erroneous or inadequate legal descriptions, a deed following non-judicial foreclosure where the process was not correctly followed, or a deed issued after judicial proceedings that are subject to appeal, can also cause a hitch in ownership rights.
- Territory issues: Churches, charities or clubs that are legal nonentities can all result in a claim, as well as undisclosed boundary issues, party wall or setback agreements. Deeds that don’t include a right of access to a public street or road, or deeds to land with legal access subject to undisclosed but recorded conditions or restrictions, also qualify.
- A neighbor: A neighbor can arise disputing the property boundaries and/or access to it, depending on the nature of the property.
- A clerical error: If a deed was improperly recorded, properly recorded but not properly indexed so it can be located in land records, missing pages or contents, lacks notarial acknowledgement or a legal description, or lacks required payment—that’s a defect.
- Extortion: A family member that coerced an uncle with a failing memory to sign over a deed, a homeowner who relinquishes the property while under the influence…both of these are examples of a deed given under influence or duress. If the deed is issued by someone who is insane or mentally incompetent, or if it is issued by a minor, it can also be claimed as invalid.
- Omission of facts: If a deed is valid but provided without consent of a co-owner, signed by mistake without the grantor’s knowledge, or includes items that are recorded but not disclosed, such as: federal or state tax lien, spousal/child support lien, an environmental lien, easements for access, utilities, drainage, airspace or even views that benefit neighboring land—it counts as having a defect.
- Dual ownership: Sometimes, a person will buy a property that turns out to already belong to someone else. Oops!
- Family matters: When an unknown co-owner surfaces and claims rights to a property, a deed from a trustee shows up that is not authorized under a trust agreement, or the property is transferred by an heir or survivor of a joint estate who murdered the descendent, you have a defect on your hands.
- An overseas party: If you purchased the property from someone overseas, that person can be challenged according to the country’s laws as incompetent, unauthorized or lacking required authority.
- Corporate complications: A deed from a corporation or partnership that is unauthorized under corporate bylaws or partnership, or a deed from a corporation that has lost its corporate charter, can result in a defect.
- Uncle Sam: If the deed was issued by a government entity, it could be challenged as unauthorized or unlawful. Errors in tax records—including mailing a tax bill to the wrong party—can cause defects, as well as incorrect release of tax or assessment liens that are later reinstated to the tax rolls.
The circumstances listed here are by no means exhaustive. And while some of them make for a decent short story, living through the reality of having to defend the rights to your property in court and even losing it is by no means entertaining. So what is a homeowner to do?
Protect Your Investment with Title Insurance
In any of the above situations, title insurance is a must-have that can protect you from losing:
- Any equity built into the home
- The cost of legal fees to defend your ownership rights
- Any appreciation on the home’s value
- Other related expenses incurred during the purchase of your property
And while having your ownership rights challenged is certainly harrowing, the good news is that procuring title insurance isn’t. As a one-time purchase made during the closing process, title insurance will protect a homeowner’s property for as long the title remains in their possession. If that title ever changes owner, then a new title insurance policy must be purchased. With that exception in mind, most people will only purchase title insurance once. To learn more about the fundamentals of the home buying process, we recommend checking out these resources:
- Title Insurance 101: How it Works and Why You Want It
- Escrow 101: What Homebuyers Need to Know About Escrow
- A Doma Homebuyer Case Study
Doma is committed to making the home buying process secure, easy, and understandable for homebuyers nationwide. If you would like to learn more about our organization and how we work, please get in touch here.