What? No owner policy!

Hi Diane, 

I moved into a house and thought my lawyer had included a buyer's title insurance policy because I asked for one. However, it turns out the lawyer was in a conflict of interest situation as he was also the lawyer for the mortgage company. The lawyer had had me pay for title insurance for the mortgage company and admitted as much when I questioned him about it at a later date.

I need to make a claim because an inspection of my home by a city inspector found several building code and by-law infractions in renovations, construction and structural work that was done before I purchased the house. I was presented with an order to have them remedied. 

This would be a huge expense expense for me so was glad I had purchased title insurance - or so I thought I had done.  I purchased title insurance after I received the order from the city and the policy date is my possession date for the house. 

 

Will the policy still cover these violations? Or, is my only recourse to sue my lawyer?

Thanks in advance for your help,

J

Morning, Jim:  Well, I guess the good news is that there's a good chance these items would not be covered by an owner policy.  I think it depends on whether you would have purchase enhanced coverage and what type of enhanced coverage is available in your state.  Zoning violations and by-law infractions are often exceptions to coverage.

I think you should have an attorney review your transaction.  I wouldn't think too much about the conflict of interest angle as this is very common with the attorney's serving both the buyer and the lender.  I would mainly look at his fiduciary duty to take care of you with the same level of care that he gave the lender.  In PA a buyer has to sign a hard worded waiver to skip the owner policy. Perhaps your state has a similar document.

Good luck.

Diane

abandoned road ownership dispute

Hi Diane,
We own a property that sits on an abandoned town road in Connecticut. In the original deed dated 1947, the owner of the land from which our property was originally subdivided, transfered all right, title, and interest to the center line of the road to our property boundary as extends along the length of the boundary along the road. This language is consistent throughout our title lineage. Our neighbor who is the grandson of the woman who was the original seller on the deed in 1947 and shares the same sir name, inherited a very large remaining land plot, previously a farm, in 1963 when this seller died. In his probate deed, he does not acknowledge the sale of this portion of the road and adjoining property and refers exclusively to the co-ordinates on a newly created subdivision map which he ordered dated 1963 excluding any language in his deed as to his boundary as the center of the road  and makes it appear that the road is an "easement" vs. abandoned road that he created to run through "his property".  In past history, he has tried unsuccessfully to relocate this road to afford him enough land acreage to secure a building lot which the road is preventing him from procuring as it stands. Recently he decided to build on a portion of land on the other side of our road (he has enough land for one lot) and submitted a map to the zoning department claiming ownership of the entire road and adjacent property to our property line...this map was certified by the zoning department with no reference to the language of our deed or our stated boundary as the center of the road and is subsequently he is claiming all the property from the center of the line of the road to our boundary which is about 15 feet from the road and 250 ft along our boundary.  Our attorney has requested that the surveyor acknowledge our deed, and revise the map accordingly but the owner and surveyor who are friends, are ignoring our request. My attorney is advising us to do a "quiet title action" to clarify the language in our deed but this will cost us a lot of money and put our deed up for question before a judge. My attorney asserts that there is a "cloud" over our deed due to this situation. My question is....will our current mortgage lender's (major bank) title insurance have their attorney fight to clarify this for us, or will our title insurance pay their attorney to defend our title to remove this cloud over our deed. Because we are still under mortgage for 18 years, do we have the right to defend this title that the bank technically still owns? 
Thanks,
J


Hi, J:  I would suggest doing two things:


1.  The surveyor is working for the other landowner.  You need to get help in another direction.  Have your attorney send a letter to the municipality advising them of the boundary line dispute - include the evidence you have in your chain of title.  Your attorney should warn them to delay approval due to pending legal action and suggest that they may be at risk of a lawsuit should they proceed with approval of your neighbor's application after having received constructive notice of the dispute. I suggest this be sent via certified mail.  You could also write this letter yourself if you prefer.  Remember I am not an attorney but I think this approach will be helpful because most municipalities are afraid of lawsuits and most try to treat citizens fairly.  If they show favoritism to this other landowner, you could recruit assistance from the local media to shed light on that.


2.  The loan policy does not cover you and would not cover the lender in this case unless they were foreclosing.  ASAP open a claim with YOUR owner title insurance company.  Their legal department will look at the situation and make a determination whether to defend your title.  Key to this is to review your owner policy and look at the legal description - often on Schedule C.  Does it include the disputed area?  If it does, then they have insured that you own this land and you have standing to expect coverage.  If you do not see this disputed land in the legal description, there is likelihood that you won't be covered.  In either case, open the claim and let them review your case.


There may be state law which specifies how abandoned town roads move in ownership.  Be sure that your attorney has researched this angle because recitation of such a law, if it is in your favor, might help resolve the matter favorably for you.


Hope this helps.  Good luck!
Diane

lost policy and title agents are out of business...what to do...what to do?

Diane,

I came across you website in surfing the net trying to find info on obtaining an owners title policy that I cannot find. 

How do I get a copy of my policy ??  I have an endorsement page from Chicago Title but do not have the other parts of the policy(it is officially stamped and has pres. Signatures).  I am doing a re-fi right now and would like the re-issue credit. I have called Chicago title and they say there records do not go back that far to 1997.

Chicago title is telling me that the paper is just an endorsement and without the other papers they cannot send me a new policy. I told them that if I had the policy I would not be calling them.

The title company that performed the closing is out of business by mismanagement(Flagler Title)

I have two first pages of the hud not the second crucial page that may have listed the company.

I do have a survey from 2005 that lists Chicago Title as the underwriter and Olympia Title was the title company. I called Olympia and they cannot find any records. 

If no one has a record how can I protect my house against any title defects ? without purchasing a new policy ? I would think I would have to have a policy as I  re-financed in 2005. But the title in that one I think is the lenders . I did manage to track some down from that hud and called but those companies say no policy as well. Lender First Choice which is now out of business . They were pretty big.  I called the companies that were their major underwriters but no luck.

How do I know if I am getting the run around. Why would their records not go back that far especially since it is the reason they exist is to protect title . Some people never move or re-fi .

Any suggestions are welcome.

Thanks,

J

Hi, J:  This is one of the weaknesses in our system of title insurance.  They rely on the consumer to retain copies and that just doesn't make sense to me.  

You've got two issues here:

1.  getting evidence of owner coverage

2.  getting that reissue discount

You may want to contact the state department of insurance to find out what the requirements are to be eligible for the reissue rate. If you were in Pennsylvania, we would not need a copy of your policy to give you the discount.  We could base the eligibility on the date of your last transaction and even that will change on July 1. They may be able to use the information from your last refinance.

As for the owner policy, without at least a copy of the HUD showing evidence of payment of an owner policy premium, it's hard to say if Chicago would honor it.  On the other hand, you have an endorsement in hand.  Look very carefully at that endorsement.  It should give the policy number and insurance companies do keep track of the policy numbers.  When a title agent goes out of business they audit the policy numbers assigned to that agency and account for each one.  Someone has to have that record. If it doesn't have a policy number it may not be a valid endorsement and you're back to square one.

I think at that point the best you can do is file complaints with the Department of Insurance and perhaps the Attorney General.  Your insurance agent seems to have taken your money and not given you a policy.  They were authorized to do business by one of the big underwriters and if nothing can be done for you, perhaps you can help improve the regulations in your state for other consumers.  Good luck and thanks for reading.  ;)

Diane

We just finished our annual CPA audit and in the process heard an interesting title insurance claim story.

Yes, we pay to have our books audited annually by an independent CPA.  I wish it was a mandatory audit, but it's not.  I'm not a big government fan, in fact I'm an advocate for limited government - highly bent in the libertarian direction, BUT when a licensed entity has access to millions of dollars of other people's money, I think there ought to be some sort of formal audit standards which include 3rd party oversight.  That's not the purpose of this post, though, so let me switch gears.


The auditor sent out by our accountant this year is a nice young man who while asking some questions, mentioned that he was near the end of a multi-year title insurance claim.  I asked him to tell me the story because I always want to know how a consumer feels when faced with a title insurance claim and whether or not they are happy with the results.

In this case, he and his wife hired an attorney to handle the purchase of 20 acres of vacant land.  They SMARTLY decided to buy an owner title insurance policy.

This young couple bought the land with plans to build their dream home.  They are both accountants and so they are good planners.  When they purchased the land, they were childless and living in a small two bedroom house.  The plan was to build a four car garage with an apartment on top.  Eventually, when they started a family they would build a large addition which would become the main house.

The whole plan fell apart when they applied for a mortgage to do the first part of construction.  The bank used a different title agent to do the title examination for their loan title insurance policy.  This second title examination revealed that there was no legal recorded right of way to the land.  Though there was an old dirt road that looked like a right of way, it went over the land of the neighbor who when approached, refused to grant an easement.

They filed a claim with their title insurance company who then offered a nice chunk of change to the neighbor and met with another refusal.  Soooo....they went into arbitration and years later finally were set to go to court and on the eve of the trial, the neighbor finally agreed and accepted a paltry sum - much lower than the first offer and settled the matter.

Okay, well that shows the value of buying an owner title insurance policy, right?  The title company paid for all the legal work and the consumers eventually got their right of way.  On the surface, it all sounds peachy keen, however, this story helps to demonstrate the VALUE OF SELECTING A COMPETENT PROVIDER.

Now, I am not saying that we human beings do not make mistakes.  Everyone does, but we EARN OUR LIVING BY AVOIDING CLAIMS.  We do a full search and examination to ferret out details BEFORE the closing in an effort to help you avoid the entire claims process.  When you place an order for title insurance, pick your provider carefully.  Make certain you are getting a full search by a competent human being.  Keep your eyes open.  Read your title insurance commitment BEFORE you go to closing.  Complete your transaction with YOUR brain engaged.

WHY?  Well, let's discuss the rest of the story.  During the years this young couple's claim moved through the system, they had two children.  They had to buy a larger home and move on with their life, abandoning their plans for the dream home on their 20 acres.  Yes, in the end, they got their right of way.  Will they ever build there?  They don't know.  Life has moved on.  She is pregnant with their third child.  They are happy they bought title insurance.  In retrospect, they do wish they had paid more attention to the title work and not just trusted that the attorney did everything right.  They knew the dirt road was private but they presumed the attorney would check on the legality of the road.  Yes, the title insurance covered access but as you see from this case, the insurance is the safety net.  What you really want to do is avoid the problem in the first place.

;)

TIRBOP Polices and Rates, continued

5.1 OWNER'S TITLE INSURANCE

A. An owner's policy issued at the time of the purchase of the property shall be based on the full consideration, including the aggregate unpaid principal sum of any mortgage(s) or other liens, claims, taxes and any other municipal charge not being paid. A policy may be issued in an amount in excess of the full consideration where agreed to by the Insurer and the Insured. In a transaction involving the sale of real estate, an owner's policy must be issued unless the new owner has waived, in writing, the purchase of an owner's policy in accordance with 31 Title Pa. Code 126.1. (See Supplemental Form TIRBOP - 31 PA Code 126.1 Waiver of Owner's Title Insurance (01/01/02).)

B. Where an owner desires that an owner's policy be issued after acquisition of title, the rate shall be based upon any amount the owner may request but not less than the present fair market value of the property as of the time the owner's policy is issued.

C. When the lender insured under a loan policy acquires title to the land by foreclosure or by voluntary conveyance in extinguishment of the debt and requests owner's title insurance, such lender may be issued an owner's policy and the applicable Charge shall be based upon the fair market value of the property at the time the owner's policy is issued.

MARKETABLE AND INSURABLE TITLE

Marketability and insurability of title are subjective.

The Pennsylvania Association of Realtors (PAR) sales agreement handles it this way: "The property will be conveyed with good and marketable title as is insurable by a reputable title insurance company at the regular rates......."

I like this language. It leaves the insurability opinion in the hands of title insurance companies. The determination of insurability may DIFFER between title insurance companies, so the seller and the buyer have options. As long as they can find a reputable title insurance company willing to insure at the regular rates, the seller has fulfilled their obligation and the buyer is protected.


What happens if you can't find a reputable title insurance company willing to insure the land? Well, you have to look at the transaction more closely to see if the problem is curable or is there a way to isolate the insurability problem and still close.

A question of insurability was introduced last week in a news group based on a case being examined by a title insurance agent in our area. It’s an interesting case because it raises the question of whether or not insurable title was bargained for when the sales contract was negotiated. I’ve edited the discussion as it was published in the news group last week based upon additional information, which has since been made available to me.

For purposes of discussion, we’ll call our property owners Mr. & Mrs. Smith. Some years ago they purchased a lot in a recorded plan on which a house and garage were constructed. Adjacent to the lot is an unopened alley, a portion of which Mr. & Mrs. Smith have improved and maintained for over 21 years as their driveway and sole access to their garage. In our discussion we’ll refer to this parcel as the “alley lot”.

Unopened alleys or streets, sometimes called paper streets, when identified in a plan of lots are rights of way created by the developer when the plan is recorded. The rights of way are created for the use and enjoyment of all the lot owners in the plan, whether or not the alley or street is ever opened. Over time, people have a tendency to start using these areas as if they owned them. [SURVEY ALERT – This is a really good reason to have property surveyed. Even your seller may not know that side yard is really a paper street. ]

The “alley lot” became an issue when in 1994 a neighbor asserted his right to use it and attempted to access his property by going over Mr. & Mrs. Smith’s driveway. The Smiths objected and hired an attorney. Their attorney advised them to file a claim of adverse possession, which he did on their behalf. Filing the claim in the Recorder of Deeds office stopped the neighbor and the Smiths and their attorney took no further action.

Mr. & Mrs. Smith now want to sell their property. They listed the property for sale; their real estate agent found a buyer and negotiated a sales contract. The contract identified the property including the recording references for both the deed and adverse possession claim.

Let’s stop here for a moment and consider the process of negotiating a sales contract. Any good contract requires a “meeting of the minds”. In other words, do all parties share the same understanding of the terms as set forth in the contract. This is important. Think about it. How many times have you and a friend read something and come to a different conclusion? It’s a fairly common problem. So unless you are a party to the discussion underlying the words on the contract, you really don’t know if the parties had a meeting of the minds.

Consider the facts of this case as we know them. Mr. & Mrs. Smith own a lot with presumably good and marketable title. They have a claim of adverse possession on a portion of an unopened alley, the “alley lot”.

Now, consider the perfect meeting of the minds based on that set of facts. The Smiths fully understand that they do not own the “alley lot”. When they list the property for sale, they explain this to the real estate agent. The real estate agent understands and markets the property for sale, explaining the facts to the buyer. The buyer bargains for the property with full knowledge that he is getting good and marketable title to the lot on which the house sits and is acquiring any rights the Smiths may have under the claim of adverse possession on the “alley lot”. We’ll assume for now that we have a perfect meeting of the minds and move on with the transaction.

The buyer hired a title insurance agent to insure title and conduct their closing. The title insurance agent completed a title search and reported back to the buyers and Mr. & Mrs. Smith that the "alley lot" was uninsurable as the attorney had not completed the legal work necessary to quiet the title following the claim of adverse possession. The title insurance agent gave Mr. & Mrs. Smith two options - postpone closing and perform the necessary legal steps OR allow the title insurance agent to escrow all or a portion of their proceeds to close now and then have the legal work done later.

At this stage, if we still assume a perfect meeting of the minds based on the facts as we know them, we would expect the parties to raise a fuss and let the title insurance agent know they didn’t bargain for good and marketable title on the “alley lot”. In fact, in a perfect world the real estate agent would have contacted the title insurance agent before title was processed to alert them to the claim of adverse possession. This is not a perfect world and it’s not clear what the parties knew or understood. A title insurance agent at this stage is raising an issue of insurability based upon the facts, as they understand them. We have no idea whether the title insurance agent considered and rejected any other options before narrowing the choices for the Smiths.

I got involved because Mr. & Mrs. Smith have hired The Closing Specialists® as title insurance agent for their cash purchase of a new home. Mrs. Smith was concerned about the delay of both transactions and she called me to discuss some options. I told her I am not an attorney and thus could not give legal advice. I offered to post the topic in our news group so we could discuss possible solutions from the perspective of title insurance.

In the original post, I followed the lead of the title insurance agent on the case. I assumed that all parties expected good and marketable title to the so called “alley lot”.

In the post, I first suggested that as the title insurance agent, I would call the mortgage lender and ask if the value of their collateral would be impacted by the elimination of the "alley lot". I would hope that the main lot on which the house sits is where the real value lies. If the mortgage lender and their appraiser concur, they simply modify the appraisal so that it does not include the "alley lot". The mortgage property description would only include the main lot and the title insurance policies would only insure the main lot.

My second call would be to the buyer. I would ask if they consider the insurability of the "alley lot" material to the transaction. Do they care if it’s included in their owner title insurance policy? If they don't care, we can insure the main lot on which the house sits and Mr. & Mrs. Smith can use a Quit Claim deed to release any interest they have in the "alley lot" over to the buyer.So if the lender and the buyer agree that the "alley lot" insurability is not an issue, we can move forward and close.

Following that post I had a chance to speak with the title insurance agent who was processing the file and as you can imagine, there was some information I did not have. For instance, I did not know about the garage and the fact that the alley was the sole access to the garage. Well, getting to and from a garage would impact value along with the use and enjoyment of the property so there was no doubt that the title insurance would have to cover access. I argued that since the alley was a right of way in a recorded plan, the right to use it could be insured, however, its use would be subject to the rights of others. We conferred with a title insurance company-underwriting attorney who agreed.

The buyer could receive good and marketable title for the main lot with the house and an insured right of way for the use of the “alley lot” including the assignment of any rights the seller may have under the claim of adverse possession.

Thinking the matter was resolved, I was totally surprised this morning when Mrs. Smith called to say the buyer was insisting that they quiet title on the “alley lot” and obtain from the court full, good and marketable title. Quiet title actions are not cheap and I suggested to Mrs. Smith that she and her husband confer with their attorney, review the terms of the sales contract, and let him advise them on their options, etc.

Only the parties in this transaction know what was said and to whom and what promises, if any, were made or implied. We hope that all parties had a perfect meeting of the minds and clearly understood the facts when they made their bargain.

But what if they didn’t?

What if Mr. & Mrs. Smith misunderstood the adverse action claim and really thought they owned the “alley lot”? They would have set the stage for a misunderstanding and may have implied and promised good and marketable title.

What if the Smiths and their real estate agent fully understood the nature of the adverse action claim but the buyer didn’t comprehend it and thought he would own the “alley lot”?

What if everyone had a perfect understanding of the facts and bargained in good faith but the buyer has just changed his mind?

These are all possibilities and the resolution of who said what to whom, etc. is not the business of the title insurance agent. The paths to insurable title have been identified. The parties themselves will have to decide which path to take, insurable access rights, which already exist, or agree to change the underlying title by further legal action creating full good and marketable title to the “alley lot”.

I do hope that the parties are able to amicably resolve their differences and that sharing their story here in TitleInsuranceTalk will help you better understand the role of a title insurance agent.

TITLE SEARCH vs. ATTORNEY TITLE OPINION vs. OWNER TITLE INSURANCE

TITLE SEARCH vs. ATTORNEY TITLE OPINION vs. OWNER TITLE INSURANCE.....WHAT'S THE DIFFERENCE??

The difference is level of risk. The purchase of real estate is typically a family's largest investment. If you are in a position to choose whether or not to buy an owners title insurance policy, you need to understand the difference between the products.

TITLE SEARCH: I'm not sure about other states, but in Pennsylvania, there are no standards for a title search. Searchers or abstractors are not licensed or certified and even if they were, there are no standards; there are no minimum requirements. So what are you getting when you buy a title search? I have no idea. You might get a lot of information, or not. You'll likely get raw data from the courthouse records. If the searcher/abstractor gives you an opinion, they have no legal authority to do so, so how will you hold them responsible if there is a problem later? Maybe if you're lucky you can get a refund on the cost of the search. Basically you are alone and totally at risk.

ATTORNEY TITLE OPINION: This is kind of an old fashioned practice and I'm surprised how many folks still rely on this method. Even in situations where a mortgage lender is requiring a loan title insurance policy to protect the interest of the mortgage lender, we see homebuyers opting to take an attorney title opinion in lieu of an owner title insurance policy. I have reviewed many attorney title opinion letters and am surprised at what they do not guarantee. Many items that would be covered by an owner title insurance policy are not covered or guaranteed in an attorney title opinion. This is definitely a situation in which the consumer must obtain the opinion and carefully read it before closing. I would strongly suggest that you ask the attorney to compare in writing the differences between accepting the opinion vs. buying the owner policy. Often there is no difference in cost or very little but the difference in risk to the homeowner is material. The bottom line for homebuyers who choose to accept an opinion instead of insurance is that the opinion is only as good as the person who issues it and the guarantee that comes with it is only as good as that attorney's willingness and financial ability to perform if you get into trouble later.

OWNER TITLE INSURANCE: The title insurance industry is regulated at the state level. The industry has adopted national standards through the American Land Title Association (ALTA) and more narrowly defines those standards in each state. Because the title insurance underwriter is affirmatively covering risk, they have clear and detailed standards for search and examination of title. There is a defined due diligence method that must be executed prior to closing and insuring the title. Roughly 80% of the premium collected for title insurance goes to pay for search, examination, and clearance of potential claims - preventative actions - prior to issuing a title insurance policy. The title search and examination performed prior to the issuance of an owner title insurance policy is akin to the physical examination many people go through before they can purchase some types of health or life insurance. The title examiner is looking for pre-existing conditions and then resolving them prior to closing. Title examiners and underwriters do not want to pay claims so they are picky. Pickiness is good for the homebuyer. Buying an owner title insurance policy is buying protection.

OK, now if the examination is so thorough, why are there still claims? Well, the beauty of title insurance is the extra stuff it covers. The big two sources of claims are fraud and human error. Let's talk about error first. I'm sure you consider yourself a very careful person. Do you ever make a mistake? Of course you do. Everybody does. Setting aside possible mistakes by the title searcher/abstractor or the title examiner, what about the courthouse? Nowadays the Recorder's office is computerized. What if the data entry clerk misspells a name and a mortgage gets lost in the system or how about typo in a deed? Errors like this may not be found for years and can cause serious damage to the integrity of a title. What if the local taxing authority gives the wrong information to the title agent and the property goes up for tax sale the year after you bought it? These are common situations caused by human error that are covered by owner title insurance.

Finally let's talk about fraud. Identity theft is real. Sometimes the thief is a perfect stranger and sometimes the thief is someone close to the seller. Here's an example. A married couple separates. Let's say the husband moves out of town or goes on vacation - he's just out of touch with the property for a while. The wife decides to sell the house, take the money, and leave town to start a new life. She gets an accomplice to pose as her husband. He signs the deed. He might not even attend closing. He might get a willing notary who isn't that careful to acknowledge his signature. She takes the money and leaves town. You move into the house - make it your home, and then someday the husband comes and knocks on the door. What happens if the thief gets past the checkpoints? The most catastrophic title claim occurs - a total failure of title. If that happens to you, you'll be thankful you decided to buy owner title insurance.

Buying an owner title insurance policy is buying real protection. It's money well spent.