Your real estate purchase is quite possibly one of the largest deals you’ll ever make. Unfortunately a thorough title exam doesn’t always guarantee a smooth transaction. A routine title examination assumes that the documents in public record are properly executed and that there isn’t anything in the record that could stand in your way of your dream.
But there are a number of hidden hazards that you must be aware of—hidden hazards that may have occurred prior to your purchase. The only way to properly cover your bases: obtain adequate title insurance. Securing title insurance protects your interests, avoiding claims against your title and insulating you against loss.
So what kinds of real estate nightmares are you protected from?
Chain of title issues
When property is transferred in a transaction, a chain of title is created. But there may be a number of issues that can compromise this chain. Forgery and fraud may occur, jeopardizing your title. You may be given title by someone who doesn’t actually own the property. Or you may be sold a property from someone who doesn’t have the legal power of attorney to do so. Deliberate or not, issues with chain of title can significantly trip up your real estate venture. Title insurance will make sure the title gets perfected or at the very least make sure you are adequately compensated.
In your purchase of a 100-acre farm for commercial real estate development, you probably didn’t realize a long-lost cousin was going to surface with a legal note. He claims he already owns 40 acres of your land. When problems like this arise, the title insurer may compensate you for your loss.
Adverse possession rights can cause you a real estate nightmare. For example, you may purchase a property, have it surveyed, only to discover that your neighbor has taken over a corner of what you believe is legally yours. If the neighbor claims adverse possession and wins, what is your recourse? With adequate title insurance, you can make a claim against your insurance and be compensated for your loss.
What happens when you believe a prior lender was paid off, but they really weren’t? Or if your new construction project has massive mechanic’s liens you were unaware of? If these and other undiscovered liens crop up outside of the title examination, the expense of resolving these will be covered by your title insurance.
Other common title issues covered include:
- Restrictive covenants
- Human errors in public records processing and recording
- Lack of legal right of access to/from the land
- Local recordings that are not filed
Though title insurance covers a number of hidden hazards, anything you would have known from a review of public records is not covered. These non-covered items include:
- Deeds and wills with improper wording/ incorrect names
- Mortgage(s) that is not released
- Easements and utility issues
- Back taxes that have not been paid
- Legal action that is pending against the property
- Exceptions noted on the policy
The good news: you can identify these exclusions and negotiate with the title insurer to try and obtain coverage to protect your interests.
The bottom line is that title insurance is critical to keeping your real estate interests in check. If something that historically occurred tries to erode your investment, your title insurance policy will protect you from devastating loss.
Patrick Hughes is an officer of Excel Title Services and a partner with Dressman Benzinger LaVelle in greater Cincinnati. Excel Title is a Cincinnati title agency that offers a full range of title insurance products and coordinates title services for clients and commercial projects nationwide.