A title company is a company that performs title searches and provides title insurance to property owners. Title insurance provides protections for the title that a property owner holds for a particular parcel of real estate. Title insurance also protects the interests of mortgage lenders from legal claims or lawsuits that are connected with the title to a parcel of property that is collateral for a loan.
A good title insurance policy protects the policyholder, who is generally the owner or lender of a certain piece of property, against loss of market value that could result from defects in the title to the property. Usually when a person buys property, they hire a title company to research the title and discover any defects or claims on it. Such defects might have appeared during a previous ownership; the buyer relies on the title company to uncover them, so they can be dealt with at the time of purchase.
In a routine transaction, the title company performs its research and then issues the title insurance. Per the policy, the role of the title insurer is to defend the policy holder against legal challenges to the title, and to pay the policyholder for the losses in value that are covered by the title insurance.
Title companies also complete tasks in addition to researching title and issuing title insurance, such as the following:
- Checking to ensure that a title is clear or free from any defects that might hinder a sale or transfer of a property or affect the interest of the buyer of property. This includes performing a title search with the county recorder of deeds to ensure that no other individual owns the property or has any claim to it and that there are no disputes regarding the title;
- Checking to see if there are any liens, judgments, mortgages, or unpaid taxes on the property;
- Checking for any easements, leases, or other issues that might interfere with the ownership of a new buyer of the property;
- Requesting and supervising a property inspection or a boundary inspection to ensure that there are no conflicts regarding fences, boundaries, or encroachments onto the surrounding property areas;
- Managing real estate trust fund accounts or escrow accounts; or
- Recording all titles, deeds, or other documents with the appropriate authorities and making sure they are filed in the appropriate manner.
What are Some Common Legal Issues Associated with Title Companies?
Working with a title company can make a property transaction proceed more smoothly, and having title insurance should offer protection in the event that a person’s title is challenged by someone with a claim of some kind to it.
However, title companies can be associated with certain specific types of legal disputes, including:
- A chain of title dispute, for example, if the company fails to identify all possible claims to ownership or unknown liens, easements held by third parties, or possibly the claims of a prior owners’ heirs;
- An issue regarding whether title is marketable or whether it has title defects;
- A fraud or a misrepresentation; or
- A breach of the insurance contract between the title company and the insured owner..
A title company and its agents are held to a certain standard regarding the accuracy of their work. If a property owner believes that the company or agent did not exercise reasonable care in performing their duties, they may be able to hold the title company liable for losses incurred in connection with the purchase of property.
One option would be suing a title company for negligence. A property owner who is insured under a title insurance policy may sue the insurer for negligence for failing to advise them of the existence of a properly recorded encumbrance affecting property that is covered by the policy This would be consistent with the basic law of negligence which provides that a person who suffers injury caused by the allegedly negligent performance of a duty of care may seek compensation for their losses through a negligence action.
Courts in several states have recognized that property owners rely on a title insurance company’s representation that title to a property is good to make purchase decisions. This can be very important, because the impact of an unknown property encroachment, such as an easement or other right of use, can be a significant burden on a person’s enjoyment of their ownership of property. Losing a small portion of land because the boundaries were not correctly established can have a huge impact on accessibility and visibility, two factors that are especially important in valuing a piece of commercial property.
If an owner were to be unable to sue for negligence they might be left with only the legal right to claim a small recovery for loss of value of the parcel, when, in fact, the impact on the owner’s use and enjoyment is much more than a reduction of its fair market value.
Of course, the law of negligence and whether it can be used against a title insurance company may vary from state to state. A property owner would want to consult an experienced real estate attorney to ensure that a claim for negligence is sanctioned in the state in which the property is located.
What Legal Remedies are Available When Suing a Title Company?
A dispute with a title company can arise when an owner discovers that some entity claims an interest in the property of which the owner was not informed when they bought it. For example, there might be an easement that was never recorded that gives the public the right to use a roadway across the property.
The response of the title company in such a case should be to research the claimed interest to determine whether it is valid. If the company determines that the claim was missed by the title company’s research prior to the sale to the current owners, the title company would have to make the payment to the owner that is promised in the contract of title insurance. Often the policy calls for payment of the reduction in value caused by the existence of the burden on the property up to the amount of the policy limits..
If an insurance company should fail to deliver the performance promised by its insurance policy, the owner might have to resort to a lawsuit against a title company. They might claim breach of contract, and/or insurance bad faith or breach of the duty of good faith. As explained above, if the facts warrant it, a claim of negligence for their failure to discover the burden or defects in the title might be an option. Another option would be a claim for breach of warranty deed covenants.
If the facts support it, a person might claim fraud and seek money damages for their full losses..
A person would want to consult an experienced real estate lawyer for a full analysis of their options and to find out what the law is in the state where the person has purchased the property at issue. State law on these issues is likely to vary from state to state.
Do I Need a Lawyer for Help with a Title Company Lawsuit?
It is essential to have the help of an experienced real estate lawyer with a title company lawsuit. A title company may be very helpful and provide assistance during a property sale or when a potential purchaser is considering purchasing a property.
However, there may be times when a dispute arises with a title company. In these cases, an attorney can review your case, advise you of possible remedies, and help you file a lawsuit, if necessary. Your lawyer will represent you during any court proceedings. A title issue can be a major hindrance to completing a real estate transaction. Having an attorney may be the difference between having a clear title and not being able to purchase a property. The law in this area is technical and getting the advice of an experienced attorney is important.