Title Insurance is Important but What Are the Common Problems?

It's not uncommon for people to have problems with their title insurance companies. We sat down with our experts to learn more about the most common issues people have with their title insurance and what you can do to avoid them. Check out these seven common problems people face with their title insurance.

Errors in Public Records

Most people think that everything must be correct because a public record has been filed. This is not always true. Errors can occur during transcription or even when documents are created. Errors in public records can be costly mistakes. If a title insurance company doesn't catch an error, you could end up being someone else's problem.

Real estate attorneys and title insurance companies should spend countless hours reviewing title reports because an error could mean trouble for you and your property in future years. For example, if something was already wrong with a house before you purchased it and you didn’t know about it because there were no records in public records, then you won’t be able to recover for that.

Illegal Deeds

Though uncommon, there are instances where someone will file a fake deed to obtain property ownership. The problem lies in who owns what and how that information is recorded. In most cases, a legal action (known as an ejectment) can be filed to remedy an issue like that. However, it can cost thousands of dollars more and take years to clear up. This is one reason why title insurance exists—to protect your property from being confiscated for no good reason.

Unknown Easements

An easement is a right for someone else to use your property for some purpose. Sometimes, you might not even know that an easement exists on your property. If you ever sell your house and are unaware of an easement on it, there's a possibility that you'll have to sell it back to its original owner at a reduced price or be sued by its new owner if they wanted to access the property in question.

Undisclosed Encumbrances

State laws differ on how they define encumbrances. An encumbrance is a claim on your property. It's possible to have unrecorded limitations that can affect the title insurance.

The most significant problem resulting from a title search is the failure to uncover an existing encumbrance, mainly if that encumbrance isn't in public records. Many buyers have been surprised when, months after purchasing a property, they find out that someone has a claim on their land due to unpaid taxes or other liens, and they have no right to use or sell it.

Missing Heirs

If a piece of property has passed through multiple owners over time, one or more of them may have died without leaving a will. This means there's no legal document to state who should receive ownership of their assets. In most countries, these individuals are referred to as missing heirs. According to title insurance underwriters, missing heirs is one of the most common problems people have when navigating their title insurance.

Each state has its unique laws regarding who legally owns the property, so if you don't research your family tree before buying a home, you could incur more expenses and headaches than expected. The best way to ensure that your title insurance is accurate is to confirm all of your relatives are listed on your deed or trust. Without an updated title insurance policy, it may be impossible for you to take ownership of your home.

Boundary Disputes

A survey on a piece of property tries to draw out what they think are boundaries. These surveys can be inaccurate, leading to disputes over who owns certain land areas, a common problem people have with title insurance. The insurance company will investigate and settle boundary disputes to protect both parties involved.

Forgeries

Forgeries have happened many times in history and have been common problems for title insurance. A fake signature or other forms of deception can often be hard to detect at first, especially if it’s on an old document. To make things worse, some of these forged documents are even considered legal and binding in some states of America.

Forgeries can occur when someone is trying to obtain a duplicate title certificate to make fraudulent property claims. Although it's possible for any person who handles real estate transactions to commit a forgery, most fraud cases occur at land record departments. Whenever there's a forgery case (which happens all too often), title insurance can face difficulties trying to resolve issues that might otherwise go unresolved for years.

Bottom Line

Title insurance helps you if you discover some hidden problem with your new property's title after you buy it. However, several issues can come up with a title insurance policy. Some of these relate to mistakes by either your lender or yourself, missing details, and problems associated with a third party that can cause a problem with your title insurance. It's essential to understand these potential problems to deal with them correctly when they arise.