Title Insurance: What Risks Does It Protect A Property Owner Against?

A recent article by the Kaua‘i, Hawaii Board of Realtors (appearing in TheGardenIsland.com) gives a basic explanation of what risks a title insurance policy actually insures a real estate buyer against.

• [A]lmost every parcel of land has had many owners. What they did or did not do can affect title to the land. Have assessments and taxes been paid? Were there lawsuits or judgments against former owners? Does a contractor or a spouse or utility company have any rights?

• Title losses arise from three principal sources: (1) Errors in searching the records, (2) errors in interpreting the legal effect of those records, (3) facts outside the records, known as “off-record risks.”(1)

• The title insurance company protects itself and the policyholder in the case of the first two sources of risks set out above by employing trained, competent searchers and examiners who are qualified to search and interpret records.

• There are, however, many sources of title defects outside the record, any one of which may also involve loss of title. The owner must assume these hidden defects if the owner does not possess a title insurance policy. Some of these off-record risks are: fraud, forgery, false impersonation, alteration, copyists’ errors, acts of minors, insanity, rights of unrevealed spouses and children, and void judgments(2) and decrees.

For more, see Title insurance: Do you need it?

Go here for other posts involving legal issues related to title insurance.

(1) A list of 35 off-record risks, or "hidden hazards," that a title insurance policy protects a homeowner and mortgage lender against are (1) false personation of the true owner of the land, (2) forged deeds, releases, etc., (3) instruments executed under fabricated or expired power of attorney, (4) deeds delivered after death of grantor or grantee, or without consent of grantor, (5) deeds to or from defunct corporations, (6) undisclosed or missing heirs, (7) misinterpretation of wills, (8) deeds by persons of unsound mind, (9) deeds by minors, (10) deeds by aliens, (11) deeds by persons supposedly single but secretly married, (12) birth or adoption of children after date of a will, (13) surviving children omitted from a will, (14) mistakes in recording legal documents, (15) want of jurisdiction of persons in judicial proceedings (ie. where a court lacks subject matter jurisdiction over a case, or where it lacks personal jurisdiction over a defendant, for example, failure to properly serve a defendant with legal process), thereby leading to judgments that are either void or voidable, (16) discovery of will of apparent intestate, (17) errors in indexing, (18) falsification of records, (19) capacity of foreign fiduciaries, (20) claims of creditors against property sold by heirs or devisees, (21) deeds in lieu of foreclosure given under duress, (22) ultra vires deed given under false corporate resolution, (23) easements by prescription not discovered by a survey, (24) deed of community property recited to be separate property, (25) errors in tax records (ie. listing payment against wrong property), (26) deed from a bigamous couple, (27) defective acknowledgements (ie. notary public screw-ups when notarizing legal documents, (28) federal condemnation without filing notice, (29) descriptions apparently, but not actually, adequate, (30) corporation franchise taxes, a lien on all corporate assets, (31) erroneous reports furnished by tax officials, (32) administration of estates of persons absent but not deceased, (33) undisclosed divorce of spouse who conveys as consort's heir, (34) marital rights of spouse purportedly, but not legally, divorced, (35) duress in execution of instruments.

(2) With all the foreclosure sales that have already taken place where the foreclosing lender lacked standing to bring the action (which, depending on the law of the particular state in which the property is located, may mean that the court granting the judgment might have lacked jurisdiction over the subject matter of the case, which would consequently make the judgment void - see #15 in footnote 1, above), there are plenty of void foreclosure judgments flotaing around out there. I suspect that the issue of void foreclosure judgments and the complications relating to the legal title to the foreclosed real estate will begin rearing its ugly head as foreclosure defense attorneys begin bringing motions to void these judgments on behalf of their clients. See Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership. title insurance legal issues