Title Problems and the Value of Title Insurance

What is a title problem?

“Title” is the legal right to use or own property, and a title problem is any issue that may negatively impact these rights. For example, there may be ownership disputes, liens, or document errors affecting your property:

• Ownership disputes. Other parties like prior owners, heirs, or former spouses may have an ownership interest in your property. For example, if your property was previously owned by multiple people, but one person never signed the deed when the property was sold.
• Liens. If previous owners have unpaid debts, like mortgages, real estate taxes, or court judgments, these debts could be liens on your property. This means that if the debt is not repaid, the creditor may force the sale of the property and apply the money from the sale to the debt.
• Document errors. Even simple document errors or clerical mistakes, like a deed that was not properly notarized Some title documents must be notarized, which means that a notary verifies the identity of the person signing the document. This is often done by looking at a photo ID, like a driver’s license. or witnessed, can lead to issues.

To learn more about potential title flaws, read Common Title Problems Covered by Title Insurance.

What Happens if Your Property Has a Title Problem

The consequences of a title defect can range from minor inconvenience to major financial loss and may include:

• Legal costs. You may need to hire a lawyer to file a lawsuit to fix the title issue or defend you if you’re sued.
• Loss of money. In addition to legal fees, you may need to pay money to resolve a title dispute. For example, if there are liens A lien is an interest in property for a debt that is owed. 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, and court judgments are examples of liens. on your property, you may have to pay the amount owed to avoid the property being sold at a foreclosure or tax sale.
• Loss of the property. In extreme cases, you could lose your property if a court rules that another party is the true owner. For example, if you purchased the property from a criminal who impersonated the seller and forged their signature on the deed.
• Inability to sell or refinance. A refinance is when a current debt is replaced by a new loan with different terms. Property owners often refinance their mortgage loan for a lower interest rate, which reduces their monthly payments. Potential buyers and lenders will be wary of buying, or lending money on, a home with questionable ownership. This could leave you stuck with the property or forced to sell at a significant loss.
• Inability to use your property. There may be limits on how you can use your property that were not disclosed to you before your purchase. For example, 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.
• Stress. The possibility of losing your biggest investment, or a home with cherished memories, can understandably cause mental or emotional distress.

How Title Insurance Protects Homeowners

An owner’s title insurance policy covers 10 to 33 different title matters (depending on the policy type) that can impair your ownership. By purchasing title insurance from First American, you can guard against the risk of an expensive title defect. Below are some of the ways we can help you:

• Fix the issue. For example, if there are document errors, we may take steps to resolve them, like filing new documents to correct the mistakes.
• Make payments to others. For example, if someone else has an interest in your property, we may negotiate payment in exchange for a deed to transfer their interest to you. Or if there is a lien A lien is an interest in property for a debt that is owed. 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, and court judgments are examples of liens. on your property, we may pay the amount owed so that the lien can be removed from the property.
• Compensate you for your loss. For example, if you lose a portion of your backyard to your neighbor, we may pay you the value of that lost property.
• Pay legal costs. We may hire an attorney to represent you or defend you in a lawsuit and pay all legal fees, for example, if someone sues you claiming to be the true owner of the property.

Conclusion

Title problems can cause significant challenges for homeowners, potentially leading to costly legal battles and financial loss. With title insurance from First American, you can protect your property and safeguard your investment.