Owner’s title insurance is an optional settlement expense – one that may be enticing to decline based on the rare chance that a buyer’s title to his property is at stake. But there are a number of issues that could jeopardize interest in a buyer’s property, and here are just a few:
Forgery: Title insurance protects the insured’s interest in his property in the event of forgeries. For instance, consider a scenario in which a husband is selling his house owned jointly by his wife. At settlement, he signs documents on behalf of his wife via a power of attorney that he forged. After settlement, the wife discovers the forgery and asserts rightful ownership to the property. If the buyer purchased title insurance, the underwriter would be responsible for litigating the matter to ensure the buyer’s title was protected, which would save the buyer a wealth of money, time, and stress.
Coverage related to forgery also surfaces in cases of identity theft. In this event, a con artist steals a person’s identity, forges his or her name on the deed, and takes title to the home. Alternatively, the con artist steals a person’s identity and takes out a HELOC on a person’s home. With title insurance the rightful owner is protected against such types of fraud.
Foreclosure: There are a number of hoops that a lender and lender’s counsel need to jump through to finalize a valid foreclosure. And many times, they neglect to jump through all the proper hoops. If the event that the lender or lender’s law firm neglected one or more steps in the foreclosure process, the previous owner (who was foreclosed upon) may challenge the foreclosure and assert title to the property after the buyer purchases the property. For instance, if the owner who was foreclosed upon never received proper notice from the lender of the impending foreclosure, the foreclosure may be deemed invalid and that owner may still have rights to the property. This is more common than you may think. Title insurance protects the insured so they can be assured that, even in the event of an invalid foreclosure, they own the property free and clear.
Forced Removal of Encroaching Structures: Enhanced title insurance covers the expense and hassle of removing an encroaching structure on the purchaser’s property, even if the structure is erected after the date of policy. Specifically, if the insured is forced to remove a structure on his property because it encroaches on adjacent land, or it violates a subdivision restriction or zoning law, the expense is covered by title insurance.
As a realtor, you benefit by encouraging your client to purchase title insurance. If any of these scenarios arise, you certainly do not want to be the individual who counseled your client to save the several hundreds of dollars at settlement.