Common Title Problems Covered by Title Insurance

What you’ll learn (TL;DR)

• Liens are the most common title defect. Mortgages, unpaid real estate taxes, HOA assessments, and court judgments are examples of liens.

• Other common title problems are errors in the public records, missing owners, invalid deed signatures, unknown encumbrances, document errors, and boundary disputes.

• Fraud and forgery are less common but are costly and make up 21% of the total amount spent by title insurance companies on claims.

Title Insurance Coverage

Title defects require time, effort, and money to resolve, but if you have coverage under a First American title insurance policy, we will fix the problem, pay you for your loss, or hire an attorney to represent you or defend you in a lawsuit. In 2022, title insurance companies paid $596 million in claims. ^[1] Though title claims are uncommon because of the work performed by title companies before property is sold, the most common title problems covered by title insurance are explained below.

Unknown Liens

Liens are the most common title defect. A lien is an interest in property held by a creditor for a debt owed by the owner. If the debt is not repaid, the creditor can force the sale of the property and apply the money from the sale to the debt. Mortgages, unpaid real estate taxes, HOA assessments, and court judgments are examples of liens. Even if a lien is for the debt of a prior owner, the lien stays with the property until the debt is paid and can become a problem for future owners. For example, if a seller remodeled their house before selling, the contractors and subcontractors who performed the work may have liens if they were never paid, even if the property was sold to a new owner. Similarly, if a seller never paid their property taxes, the amount owed remains a lien on the property, even if the taxes were charged for the time before the buyer bought the property.

Errors in the Public Records

The public land records are where deeds and other documents that affect property interests must be filed. County clerks typically do not verify the accuracy of documents that are filed. They generally only require that they be in the proper form, that recording “Recording" is the process of placing a document, like a deed, in the public records. Each county has its own system and requirements for recording documents. requirements are met, and that the recording fees and taxes are paid. Sometimes mistakes are made, either by the person filing the documents or the county employee. For example, a deed may be filed under the wrong name or against the wrong property.

Missing Owners

Someone else may own an interest in your property. For example, this can arise if the property was previously owned by a married couple, but one spouse did not sign the deed when the property was sold. Another scenario is when the seller inherited the property from a deceased relative, but an unknown heir surfaces in the future. Or a will is discovered that leaves the property to someone other than the seller. Alternatively, family members may decide to contest a will and dispute the seller’s right to sell the property. These events may not happen until years after the property was sold, or after the property has been transferred multiple times.

Invalid Deed Signatures

A deed may be invalid because it was signed improperly. A sale from a company may be defective if the deed was not signed by a person authorized to sign on behalf of the business. Or a deed may be invalid if it was signed by mistake or by a person suffering from incapacity or incompetency. “Incapacity” means a person does not have the mental ability to do something. For example, an elderly person with dementia may not have the capacity to sell property. “Incompetency” means a person does not have the legal ability to do something. For example, a minor child is unable to sell property.

Unknown Encumbrances

Encumbrances are rights others may have in your property or limits on how you can use your property, but they may be unknown to you or not shown in the title search that was performed before you bought your property. For example, a neighbor may have an easement An easement is the right to use part of someone’s property for a particular purpose. For example, neighbors may have easements over each other’s property to use a shared driveway. Utility companies often have easements to run utility lines across private property. to use your driveway. Or there may be use restrictions like not allowing temporary rentals or limiting the types of animals or vehicles that can be kept on the property.

Document Errors

There may be an error in a deed or other document in the chain of title, like the wrong person listed as the grantor or grantee The "grantor" listed in the deed is the party selling or transferring the property, and the "grantee" is the party buying or receiving the property. or a missing signature from a required witness or notary. Your deed could list the wrong legal description or none at all. The legal description is used to identify the property’s exact location and its boundaries, and errors can create questions as to what property was transferred by the deed.

Boundary Disputes

Some policies cover survey issues and conflicts with your property’s boundary lines. For example, your neighbor may claim to own a portion of your land because their survey shows a different boundary line than your survey. Or a structure on your property, like your house, shed, or fence, may extend past the boundary line onto your neighbor’s land.

Fraud & Forgery

Though fraud and forgery are less common, the average cost for this type of claim is over $143,000 and makes up 21% of the total amount spent by title insurance companies on claims. The average cost for other claim types is around $26,000. ^[1] In a typical deed fraud scheme, a criminal impersonates an owner and forges their name on a deed to sell the property and steal the sale proceeds. Title insurance protects you if your seller was an imposter or if your sale is invalid due to other fraudulent activity. Some title policies, like the First American Eagle policy, also protect an owner whose name is forged on a deed after their purchase. You can learn more by reading Home Title Theft: A Hassle for Homeowners.

Play It Safe

Title insurance often covers these issues and many more. If there’s a problem with your title, it can lead to costly legal battles and loss of property. When you buy a home, make sure you protect your investment with title insurance.