UNDERSTANDING TITLE INSURANCE
True Title Insurance Tales
Why an Owner's Policy?
Mr. Seller and (presumably) Mrs. Seller arrived at settlement to execute the
deed to Mr. & Mrs. Buyer. A while later, the real Mrs. Seller's attorney mails a
letter to Mr. & Mrs. Buyer claiming the property still belongs to Mrs. Seller,
who had been separated at the time of the purported sale and unaware of the
perfidy of Mr. Seller.
Joe Frazier, after his annuity income stops, decides your property is still
his, 14 years after he signed a deed. Sounds crazy, but he still sues you and
you need a good title attorney, NOW.
Your legal description recites a boundary along a roadway. Your seller says
he uses the dirt roadway to get out to the main roadway. The searcher just
assumes there is legal access to a public road because of the way the legal
description reads. When the property owner over which you must travel to reach
the main highway sells, the new owner decides to block off the dirt road. Now
you are landlocked. You may or may not be able to require this neighbor to open
the roadway again without purchasing an easement from him, but you have to go to
court and pay a lawyer and the court expenses.
A new regime takes over the local municipal government determined to save the
taxpayer's money and get re-elected again and again. The "newly elected" tackle
their new job with vigor that would surpass the "white tornado" in that old
commercial for a newer, stronger, more disinfectant cleaner. They are determined
to "clean house." To their delight they discover that their campaign rhetoric
was absolutely true. The last members of the municipal board had never gone
after the scofflaws of the township to get them to pay their water/sewer line
tap-in fees, or their street improvement assessments, or any of the other myriad
township assessments and fees imposed on the upstanding property owners as a
privilege to live in "Camelot" township. Now is the time to collect on the old
municipal liens. But now you are the owner of the property. It was your seller
who was the "scofflaw."
When you purchased your property, the settlement clerk paid off the seller's
mortgages. You thought your troubles were over. Later when you went to refinance
your mortgage for a lower interest rate, the searcher finds old open mortgages
still against your property. The settlement clerk had obtained a letter of
indemnification from the seller's title insurance underwriter (because the
seller had an Owner's Title Policy) in order to insure over these old mortgages.
Later the clerk failed, for whatever reason, to obtain releases from the
mortgage companies to clear the courthouse records. If you did not purchase an
Owner's Title Policy insuring you against such liens, you cannot obtain a letter
of indemnification, as did the seller when you purchased, because you did not
purchase the Owner's Title Policy to protect yourself.
However, you were advised by a trusted and competent advisor that you do not
need an owner's title policy. "Once they search the title to protect the lender,
you know your chain is good. So why pay the extra money for an owner's policy."
Good advice? Not when that claim comes in.
A Lender's Title Policy insures only the lender. And the Lender's policy
insures that the mortgage is a first lien. The lender, of course, would be
concerned if you lost your title to the property but only when you lost your
title to the property. The lender would be concerned if they found out there is
a judgment or municipal lien ahead of their mortgage in lien priority; but only
when the mortgage is in foreclosure. The lender gets concerned once the tragedy
has already happened. An owner is concerned before it gets that far. And,
without an Owner's Policy, you are not covered and you must pay someone else's
Because the title policy is an indemnity contract for losses, the mortgage
company must suffer a loss before they actually have a claim under the Lender's
Title Policy. Therefore, they must proceed to foreclosure, sell the property and
obtain less than the debt due on the loan. By that time the owner has been
ejected from the property.
For just a little more money over the lender's-only policy you can get an
Owner's and Lender's policy combination that protects your ownership interest.
In addition, should you die, the ownership interests of you heirs or devisees
are also protected under this same policy. You pay a premium only once and the
policy continues in force until you sell to a third party. Don't let anyone
convince you that the lenders coverage accrues to your benefit
Reprinted from the December 1999 issue of the Old Republic
National Title Insurance Company newsletter, Title Talk, Pennsylvania