There are many title issues that can arise to cause the loss of real property and associated investment and/or the incurring of significant legal expenses. The sad reality is that there are various title problems that are NOT readily disclosed by the most careful search of the public land records. These defects are often called “hidden hazards” or “latent title defects” and they can be very most dangerous to real estate investors who (1) conduct their own title examinations or (2) try to “save money” and not purchase owner’s title insurance since they plan on flipping the property in short order. These practices are an example of being penny wise and pound foolish. Because of these latent defects, even when proper precautions are taken, title commitments and related title notes may be “perfect,” but title could nonetheless be severely impaired.
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The best and most feasible way to protect against the potentially horrific consequences of these latent defects is to ALWAYS purchase an owner’s title insurance policy. An owners’ title insurance policy protects the investor as well as his/her heirs from financial loss caused by title problems. Even if a title claim proves to be without merit, an owner’s title policy is valuable because the title insurer, without expense to the landowner, will defend against any attack on the title to the insured property as insured. Such defense costs can run into large sums quickly inasmuch as the typical hourly rate for attorneys can be $250.00 and hour and more. Should the worse case scenario prove true and title is significantly impaired, the title insurer will pay to correct title or reimburse the policy holder up to the limits of the policy coverage. Thus, the one-time premium for an owner’s title policy is small in relative monetary terms while the protection is great.
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Here are some of the hidden title problems that can occur. You may not discover them when buying real estate but months or years later, they can result in the loss of investment property or an expensive lawsuit.
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1. False impersonation of the true owner of the land.
2. Forged signatures on deed, releases, etc.
3. Instruments executed under fabricated or expired power of attorney.
4. Deed delivered after death of grantor or grantee or without consent of the 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 (foreign nationals).
11. Deeds by persons supposedly single but secretly married.
12. Birth or adoption of children after the date of a will.
13. Surviving children omitted from a will or affidavit of heirship.
14. Mistakes in recording legal documents.
15. Want of jurisdiction of persons in judicial proceedings.
16. Later discovery of will of apparent intestate decedent.
17. Courthouse errors in indexing resulting in missed deeds and instruments.
18. Intentional falsification of records.
19. Capacity of foreign fiduciaries of trusts or estates.
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. Easement by prescription not discovered by survey.
24. Deed of marital property recited to be separate property.
25. Errors in tax records. (e.g., listing payment against wrong property).
26. Federal condemnation of property without filing a notice.
27. Descriptions not actually adequate (e.g., the boundaries do not close).
28. Erroneous reports furnished by tax officials.
29. Administration of estates of persons absent by not actually deceased.
30. Undisclosed divorce of spouse who conveys as consort’s heir.
31. Marital rights of spouse purportedly, but not legally, divorced.
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Having an owner’s title policy provides other practical benefits to real estate investors. If owner’s title insurance is purchased, subsequently identified liens and title defects that arose prior to the policy date but that were not listed as exceptions on Schedule B to the policy will be covered by the policy and the insuring title insurance company will cure the defect or, in the case of total title failure, pay the investor up to the face amount of the policy. In addition, if the ultimate purchaser of a rehabbed property utilizes a different title insurer for their purchase than the one used by the rehabber/investor, frequently the investor who bought an owner’s policy can get still an indemnification from his/her title insurer so that the defect can be insured over by the new title insurance company. Without an owner’s policy, such indemnification is NOT available.
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The best and most feasible way to protect against the potentially horrific consequences of these latent defects is to ALWAYS purchase an owner’s title insurance policy. An owners’ title insurance policy protects the investor as well as his/her heirs from financial loss caused by title problems. Even if a title claim proves to be without merit, an owner’s title policy is valuable because the title insurer, without expense to the landowner, will defend against any attack on the title to the insured property as insured. Such defense costs can run into large sums quickly inasmuch as the typical hourly rate for attorneys can be $250.00 and hour and more. Should the worse case scenario prove true and title is significantly impaired, the title insurer will pay to correct title or reimburse the policy holder up to the limits of the policy coverage. Thus, the one-time premium for an owner’s title policy is small in relative monetary terms while the protection is great.
*
Here are some of the hidden title problems that can occur. You may not discover them when buying real estate but months or years later, they can result in the loss of investment property or an expensive lawsuit.
*
1. False impersonation of the true owner of the land.
2. Forged signatures on deed, releases, etc.
3. Instruments executed under fabricated or expired power of attorney.
4. Deed delivered after death of grantor or grantee or without consent of the 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 (foreign nationals).
11. Deeds by persons supposedly single but secretly married.
12. Birth or adoption of children after the date of a will.
13. Surviving children omitted from a will or affidavit of heirship.
14. Mistakes in recording legal documents.
15. Want of jurisdiction of persons in judicial proceedings.
16. Later discovery of will of apparent intestate decedent.
17. Courthouse errors in indexing resulting in missed deeds and instruments.
18. Intentional falsification of records.
19. Capacity of foreign fiduciaries of trusts or estates.
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. Easement by prescription not discovered by survey.
24. Deed of marital property recited to be separate property.
25. Errors in tax records. (e.g., listing payment against wrong property).
26. Federal condemnation of property without filing a notice.
27. Descriptions not actually adequate (e.g., the boundaries do not close).
28. Erroneous reports furnished by tax officials.
29. Administration of estates of persons absent by not actually deceased.
30. Undisclosed divorce of spouse who conveys as consort’s heir.
31. Marital rights of spouse purportedly, but not legally, divorced.
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Having an owner’s title policy provides other practical benefits to real estate investors. If owner’s title insurance is purchased, subsequently identified liens and title defects that arose prior to the policy date but that were not listed as exceptions on Schedule B to the policy will be covered by the policy and the insuring title insurance company will cure the defect or, in the case of total title failure, pay the investor up to the face amount of the policy. In addition, if the ultimate purchaser of a rehabbed property utilizes a different title insurer for their purchase than the one used by the rehabber/investor, frequently the investor who bought an owner’s policy can get still an indemnification from his/her title insurer so that the defect can be insured over by the new title insurance company. Without an owner’s policy, such indemnification is NOT available.
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Best Solution: Use an experienced real estate attorney, obtain a title commitment from an experienced and reputable title insurance company, AND purchase owner’s title insurance. It is ALWAYS crucial that a title exam be conducted to identify (A) all mortgages that attach to the property, (B) any state or federal tax liens that may attach to the property, and (C) any other judgment liens that may attach to the property. This latter category of judgments can relate to unpaid medical bills, defaulted credit card accounts, unpaid utility bills, or even delinquent child support payments. If an investor closes on a purchase without making sure that all previously attaching liens and judgments have been satisfied or confirmed to not apply to the property, they will be a title defect at the time the rehabbed property is sold.
Best Solution: Use an experienced real estate attorney, obtain a title commitment from an experienced and reputable title insurance company, AND purchase owner’s title insurance. It is ALWAYS crucial that a title exam be conducted to identify (A) all mortgages that attach to the property, (B) any state or federal tax liens that may attach to the property, and (C) any other judgment liens that may attach to the property. This latter category of judgments can relate to unpaid medical bills, defaulted credit card accounts, unpaid utility bills, or even delinquent child support payments. If an investor closes on a purchase without making sure that all previously attaching liens and judgments have been satisfied or confirmed to not apply to the property, they will be a title defect at the time the rehabbed property is sold.
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