QUESTION: I am a little confused about title insurance. Why should I buy title insurance if there has only been one previous owner? Further, doesn’t the settlement attorney check the title to the property?
ANSWER: When purchasing a home, the attorney will offer you the opportunity to buy title insurance. Why? Because any home, regardless of its age, is built on land as old as the earth itself. Undoubtedly, the land has had many previous owners. Claims against any of these persons can be filed against the property and against the present owner.
Under Maryland law, the title company handling the settlement of property situated within the State is required to offer the purchaser title insurance. The title company is typically an agent of the title insurance company. There are two different types of title insurance, lender’s and owner’s. A lender’s title insurance policy, which is almost always mandatory, protects only the lender and terminates immediately when the loan is paid off.
The question is asked, “Why do I need owner’s title insurance if the attorney has examined the land records?” To satisfy this inquiry, you must first know what a title examination is. To begin an examination, the attorney who certifies the title will obtain an abstract of the title to the property in question from an independent title examiner at the courthouse land records office. An abstract is a history of the title for the last sixty years. It is a compilation of all pertinent instruments affecting the title of the property, as recorded among the various records of the county in which the property lies.
As you can see, the attorney’s examination is based on what he has discovered from this review of the abstract of the original land records. What if the records have been forged or a minor has attempted to convey his title? Unfortunately, no examination of the title, no matter how complete or how expertly accomplished, can protect a purchaser against hidden defects which are not a part of the records. Additionally, what if a claim is made against your ownership which is not valid? Without title insurance, you still must bear the cost of legal fees in defending the claim.
The following are listed as some of the more common “hidden defects” which occur in title insurance claims:
Forgery, often expertly done, when revealed, has clouded title to thousands of properties. It happens with alarming regularity and quite often involves the most unlikely people, which is why it is often undetected for a long time. An unlikely forger may be that nice person who is really a disgruntled spouse and forges the name of an estranged husband or wife on a deed. And, of course, the forgery may have occurred a long time ago, involving people you did not know existed. A forged deed conveys no valid title to your home.
The Missing Spouse
Many people have innocently bought homes from a man or woman they thought was “single,” only to have an estranged, separated, or missing spouse later reappear to claim his or her ownership rights in your home.
The Minor or Mental Incompetent
A deed from a minor or mental incompetent will cloud the title to your home, although this could not be detected from a title examination.
Missing heirs and vague or incorrectly drawn wills are a fruitful source of headaches for innocent home buyers. A person thought to have no living relatives may die and have their property sold in a seemingly legal manner, only to have a long-lost relative turn up years later to claim a whole or part interest in the home.
Similarity of Names
Let’s say you are buying a house from someone named Johnson. There are thousands of Johnsons in your community, many with identical first names or initials; and when there are judgments, liens, or divorces involving dozens of people by the same name, the title search is no easy matter. To make it still harder, members of the same family may spell their names differently or one may use several spellings in his lifetime. A wife and husband may divorce and the husband may marry another woman with the same first name as the first spouse. The second wife’s signature might then appear to dispose of the first wife’s legal rights, although, of course, it could not do so. Two members of the same family often have the same name, as in the case of father and son, and title may be held by one, while the Deed is executed by the other who has no ownership interest.
A deed may have been delivered without consent of the owner or after the owner’s death. A document may have been executed under an expired or improperly drafted power of attorney. The name of the grantee may have been inserted in the deed after its delivery. The officer of a corporation may not have been properly empowered to act. In any case, the action may result in loss of title.
One of the most common title claims results from a simple mistake in the Courthouse land records. A lien may be improperly filed or a judgment may have been incorrectly indexed.
The only way for purchasers to protect their investment is to purchase owner’s title insurance. The owner’s title policy will guarantee that the title is free from defects and from any lien or encumbrance thereon, unless specifically set forth in the policy as an exclusion. Of course, it also insures against the possibility of human error in either the abstracting or examination of the title. As a rule, a title company will no more insure a bad title than a fire insurance company will issue a policy on a burning building. However, title companies frequently are able to insure against technical objections that might be made, thus enabling titles to be transferred much more easily than might otherwise be the case.