Title insurance and known title defects

By March 11, 2011 Uncategorized

“Don’t worry about it – title insurance will cover it!” … This is what I keep hearing from agents when they talk to their clients about potential title insurance issues: “Don’t worry about it, you are getting title insurance – that will cover it!” 

My response: “Whoa!” 

The most recent instance was a District of Columbia tenant issue. I had to break it to the agent and the purchaser that the title insurance would not cover it and the underwriter would take specific exception to this issue because all of the parties were aware of the issue. 

One thing many folks do not seem to understand is that the title insurer literally steps into the purchaser’s (new owner’s) shoes and commences legal action based on the title issue at hand on behalf of the purchaser (new owner) and can only pursue a legal action the actual owner would be able to pursue. 

In other words, title insurance is to cover the unforeseen title issues.  If the purchaser, now the new owner, has knowledge of an issue or has waived the right to sue the seller for any title issues  it is difficult for the title insurer to pursue any legal action on behalf of the new owner. (Hint: look at the addendum to a contract for properties bought from a foreclosing bank or acknowledged tenants in the property, etc.)

So, before a purchaser becomes a new owner to a property with known potential title issues, that purchaser should consult the settlement attorney to fully understand what he or she is “signing up for.”

Title insurance doesn’t always “cover it.”

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