Generally speaking, many people will often purchase title insurance before buying a home or an interest in real estate. The reason for this is because title insurance can help protect property buyers against land or real estate transactions that involve defective or unmarketable title.

Although prospective buyers should do their own research on titles to a property they intend to purchase, a title insurance company can provide extra assurance that title is in fact marketable. If title is defective or unmarketable, a title insurance company can indemnify those who are covered by a policy for any financial losses associated with the invalid title.

For instance, a title may be defective or unmarketable if there is a mechanics or mortgage lien against the property in question. This means that the buyer can be sued for the seller’s debt, even if they were not aware of it because holding title to the property means they are now the new and rightful owners.

Therefore, if you are considering purchasing a new home or other interest in property, you should think about obtaining title insurance first. If you are unsure of what type of policy may be best suited to your needs or would like some assistance with negotiating a title insurance contract, then you should speak to a local real estate attorney for further legal advice on title insurance coverage.

How Can I Recover My Title Insurance Benefits?

As previously mentioned, title insurance protects against defects and other issues associated with title documents. Consider the following scenario:

  • A homebuyer enters into a real estate transaction in which they receive title to a new house. The title is fraudulent, but the homebuyer is unaware of this fact and thus completes the purchase. Years later, the homebuyer wants to move and attempts to sell the house. The new buyer discovers the title is fraudulent. This means the homebuyer is not the true owner of the house. The homebuyer suffers a financial loss during the transaction since they cannot transfer good title and they are not the true owner of the house.

Although this may be contingent on the terms of a specific title insurance policy, most title insurance companies will pay or issue benefits to the homeowner under such circumstances. If a title insurance company refuses to pay out the insurance proceeds, then the property owner may be able to sue to recover those benefits. However, the property owner will first have to prove the following elements:

  • The title insurance company entered into an agreement with the property owner and issued them a title insurance policy;
  • The issued title insurance policy provided coverage for the property in question;
  • The holder of the title insurance policy was also the named beneficiary listed on the policy;
  • The title to the property turned out to be encumbered, unmarketable, or defective;
  • The encumbrance, defect, or unmarketable property title was included as part of the terms of the title insurance policy;
  • The holder of the title insurance policy suffered an actual loss due to the encumbrance, defect, or unmarketable title on the property;
  • The holder of the title insurance policy filed a claim for benefits with their title insurance company; and
  • The claim for benefits was filed on time.

In addition, a title insurance holder may be required to show proof that they complied with all of their title insurance company’s “notice of claim and proof of loss” policies.

Are There Any Defenses?

There are a number of defenses that a title insurance company may be able to raise in the event of a lawsuit. Some common types of defenses that a title insurance company may claim include the following:

  • The title to the property was not in fact defective;
  • The encumbrance, defect, or unmarketable condition on the title was exempt from coverage;
  • The title insurance company issued the proper benefit proceeds in accordance with the holder’s title insurance policy; and
  • The holder of the title insurance policy did not comply with the necessary “notice of claim and proof of loss” requirements.

What Defects or Encumbrances are Typically Exempt From Coverage?

There are certain types of defects and encumbrances on titles that may be exempt from title insurance coverage. This means that if a title is defective, contains an encumbrance, or is unmarketable, then the holder of the title insurance policy will not be allowed to collect any benefits.

Some examples of encumbrances or defects that are typically exempt from title insurance coverage include the following:

  • Any encumbrances, defects, or unmarketable title issues that could have been discovered by searching a title index or other public real estate records. A “wild deed” is just one example of a title defect that could have been previously discovered through such search methods.
  • Any encumbrances, defects, or unmarketable title issues that could have been discovered by conducting an accurate survey or land assessment.
  • Any encumbrances, defects, or unmarketable title issues that are not explicitly mentioned in the property owner or named beneficiary’s title insurance policy. For instance, water rights and mineral rights are two different kinds of land rights that are not usually covered by a title insurance policy.

In addition, the rights of a person who is solely in possession of the property and who is not the property owner will generally not have coverage under a standard title insurance policy. However, there is one exception to this rule and that is if either the person is listed as the named beneficiary on the title insurance policy or the policyholder negotiated with the title insurance company to place that person under their policy.

What Benefits Can be Recovered?

Individuals who are successful in bringing a lawsuit against a title insurance company in order to recover title insurance benefits will typically be awarded monetary damages. This type of monetary damages award will usually be calculated by determining the difference between the value of the property with a title defect versus the value of the property without a title defect.

The amount of the award can vary widely and will be contingent on the extent of the title defect or other title issues that exist. Aside from recovering the loss of value in the property, a policyholder may also be able to recover the following title insurance benefits:

  • Obtain protection against the loss of property (e.g., remain the rightful owner of the property and not have it taken away despite having defective title);
  • Request that the title insurance company purchase any land involved in a boundary dispute;
  • Have the title insurance company pay for the value of any property that is taken away as a result of defective title (as opposed to the price of depreciation of the land); and
  • Ask the title insurance company to cover the costs of a lien that belongs to the previous property owner.

Do I Need an Attorney to Recover Title Insurance Benefits?

If you need assistance with recovering title insurance benefits or believe that a title insurance company has wrongfully denied your title insurance benefits, then it may be in your best interest to contact a local real estate attorney for further assistance. An experienced real estate attorney will be able to explain your rights under the laws in your area and can determine whether or not you have a viable claim.

Your attorney can also assist you in recovering title insurance benefits, suing your title insurance company, and determining next steps. In addition, your attorney can provide legal representation in civil court or at a settlement conference.

Finally, if you are in the process of selecting a title insurance policy and have not yet signed a title insurance agreement, then you should hire an attorney to review your title insurance documents before you sign them. This can help you to avoid a legal dispute over title insurance issues in the future.