Title Insurance May Be
A Smart Investment - Part 2

The Denninger Report  - by Gini Denninger

Title insurance is unique in that it protects against past events, not future events like your home owners insurance policy. For example, you take out home-owners insurance to cover possibilities such as a fire destroying your home, and with it, your investment. Title insurance covers what may have already happened, but that you and others involved with your closing, may not be aware of. There is a large gamut of possibilities that could affect your ownership in a property you buy. There may have been a failure to notify all creditors in a prior foreclosure action, gaps in the chain of title, forged deeds, wills that were not probated, mortgages that were not discharged and many other legalities which can and do fill legal books! James A. Marino, Esq., a Rochester real estate attorney, also noted “in this day and age of identity theft and internet fraud, the claim being made on the property may not even be valid, but a title insurance policy will cover the attorney fees and legal costs of defending such claims.” Further, he stated that “In a large number of cases, it’s the attorney fees and costs that are financially and emotionally destructive rather than the claim itself.”

One example of the need for this protection is of an uncle who gave a quit-claim deed to his home to a nephew, and the deed was never recorded. Subsequently, the uncle died without a will, but the nephew was unaware of his death. Probate was initiated and the property disbursed to the presumed heirs. The home was given to the heirs, since there was no knowledge of the deed to the nephew. The heirs sold the home and eventually the nephew found out. He actually had some claim to the property and that would need to be settled in court. 

This is when title insurance comes into play. The buyer purchased the property with a mortgage. Their mortgage company required title insurance, and a mortgagee policy was bought. (Here is where home buyers normally come into trouble.) The buyers did not know or understand that the mortgagee policy covered only the mortgage holder’s losses. (Most buyers assume that this policy protects them. It does NOT. This policy only covers the mortgage company.) Fortunately, the buyer in this story had an attorney that highly recommended they purchase what is known as a Fee Title Insurance Policy. 

Besides recommending his clients buy the Fee Title Insurance Policy, the attorney made the buyers aware that there was also a Fair Market Value Rider available. (This is purchased at the same time as the “Fee Title Insurance Policy” and covers home value increases over time. If you do buy the “Fee Title Insurance Policy” I highly recommend you include a Fair Market Value Rider.) While Fee Title Insurance is mandated by some attorneys, especially when 10% or more is put down on the property, not all attorneys mandate this additional rider. Luckily, the buyers in this story bought the additional rider.



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