Understanding the Hidden Risks to Your Title
Oct 27, 2021 | Title Insurance | Share:
The purpose of a title search and exam is to present a homebuyer with a clear and marketable title to their home. But if the title is clear, why is title insurance needed?
Unfortunately, even the most thorough title searches cannot uncover every potential title issue. In fact, some risks to your title are hidden and may not be discovered until after the closing transaction is complete.
Title insurance protects a homebuyer from the most common hidden risks to a title. We’re here to help you better understand some of these risks that can threaten your title.
The purpose of a title search
Before the sale of a home is complete, a title company will perform a thorough title search and exam to ensure that there are no defects in the chain of title. The search and exam traces the history of your title and strives to present a complete story of your property. The title company will make sure there are no pages missing from your property's story, as well as identify anything that has been added to the story of your property.
Your title company will diligently search public records, including land surveys, deeds, information from the tax assessor, and HOA records to establish a clear chain of title and a title that is free of defects. In other words, the title company is making sure that the new owner can own their home without any risks to their ownership.
A title search can reveal a number of issues that could affect the title, including, but not limited to missing deeds, defective deeds, as well as liens and encumbrances.
Once the title search has been completed, your title company will present you with a title commitment, which is a promise to issue title insurance once any potential issues have been resolved. When a property is sold, all known risks to the title have been cleared, pursuant to the requirements on the title commitment.
Why you still need title insurance
Even the best title searches cannot uncover every potential issue with a title. The title company can search for what is known and in the public record, but a search cannot extend to what is not known. These are known as hidden risks to the title, and is where title insurance steps in. These are five of the most common hidden risks to your property's title:
Forgery and fraud
Unfortunately, forgery and fraud do happen and can threaten your title. Forgery can include falsified signatures on wills, deeds, or other documentation. Fraud can occur in a number of forms, including homes that have been fraudulently deeded in times of economic duress, like during the recession of 2007. Fraud can also occur when an individual pretends to be someone they are not when a home is sold.
If forgery or fraud is discovered during the title search, these will be addressed before the sale of the home. Unfortunately, forgery and fraud can be difficult to uncover, and these cases often look legitimate.
Tax assessor errors
The title search may also uncover any unpaid taxes for a property. As part of your closing, your closing agent will ensure all property taxes are paid. Unfortunately, if the tax assessor determines that the amount previously assessed was incorrect, they have the right to file a lien against the property for those unpaid taxes, even if the home is owned by someone else.
These tax liens aren’t usually terribly expensive, but they can be a hassle and an inconvenience to deal with. If you have owner's title insurance, the title insurance company will get the lien paid on your behalf, either by the previous owner of the home or through a claim on your title insurance.
There are numerous parties involved in a closing transaction from the claim agent to the counting recording office. As your deed is processed, mistakes can occur, with the most common being a misindexed deed at the county recording office. Filing and recording errors can happen and, unfortunately, they can lead to hidden risks to your title. For example, a property might be indexed as Lot 3 instead of Lot 30. Another example could be signatures missing or incorrect information on essential documentation.
These issues are often discovered during the title search and exam for prior conveyances, but sometimes larger problems may occur after the sale is closed. For example, if a mortgage has been filed in the wrong county, it may not be discovered in the initial title search. But if an open mortgage is discovered, that can become a future cloud on the title for the new homeowners, even if they did not take out that mortgage themselves.
A number of title issues can occur with estate properties. In order for there to be a clear title, the deed must be transferred by the individuals who have the right to do so. Occasionally with estate sales, someone who does not have the authority to sell the home signs the paperwork, or an heir that needed to be present to sign at closing was not there.
Missing or undisclosed heirs can also be problematic with estate properties. If a property has been willed to the heirs of a home and later, an unknown child from a previous relationship becomes aware of the property, they are legally able to make a claim to ownership. This claim can occur at any time, even after the home has passed out of their family’s hands.
The most common undiscovered liens are HOA liens. Homeowners Associations have a duty to file any liens in a certain amount of time, but occasionally there will be a lien filed on the day of closing, within a short window of time after closing, or filed at a later date for the prior owner that creates a cloud on the title. These liens are attached to the property, and a new homeowner would be responsible for the payment of these liens.
Similarly, municipal liens are not always filed in a timely manner and may be applied to a property after a home sale is complete. Unpaid sewer charges leading to sewer liens are a great example. These liens aren’t often expensive to resolve, but they can be a headache to deal with if you don’t have title insurance.
How title insurance helps
This isn’t an exhaustive list of potential hidden risks to the title of your property. You might be surprised to learn how many potential risks there actually are. Fortunately, title insurance protects you from liability from these risks. It’s important to note that not all hidden risks are covered by standard owner’s title insurance; an enhanced title insurance policy will cover many of the less common risks.
If you have title insurance and are affected by one of these hidden risks after you purchase a home, your title company will not only cover the financial cost of resolving these issues but will also cover any potential legal fees. Moreover, once you file a claim with your title company, you don’t have to do anything else; the title company will handle everything else related to the resolution of your claim.
At South Oak Title and Closing, we’re committed to excellence and accuracy in every title search. We deliver that same commitment to title claims, providing unmatched customer service throughout the entire process. Contact us for more information about our title services, or order a title today.
South Oak Title and Closing is an agent of Stewart Title and Title Resources Guaranty Company.