By: Lance T. Denha, Esq.
Any time somebody buys a plot of land or real estate property of some sort, there is a distinct possibility that if the proper preventive measures are not taken, this transfer of land can create a litigious land dispute. Title Insurance is often a major part of the transaction, since it provides protection for the major parties involved, such as the buyer, the seller, and loan or mortgage companies. For instance, title insurance may protect a buyer if the title has some defect or legal encumbrance.
Because there are multiple parties involved in a real estate transaction, title insurance can lead to various forms of legal disputes. These can vary in nature depending on the transaction, but they often involve certain legal issues that are related to the title.
Some common subjects of title insurance legal disputes include:
• Marketable Title: Marketable title means that the chain of ownership (title) to a particular piece of property is clear and free from defects. This confirms that there are no liens, debts, or other encumbrances that would make the property defective. Title insurance negotiations often revolve around the definition of “marketable title.”
• Insurable Title: Insurable Title is the type of title that does, or may have a known defect or defects in the chain of title. However with Insurable title, a title insurance company has agreed in advance to provide insurance against the defects ever affecting the ownership or value of the property.
• Limitations of Owner’s rights: By law, sellers in Michigan are required to comply with a Sellers Disclosure Act when purchasing a home. This law requires a written statement to be provided to the buyer by the seller before a binding purchase agreement can be created. However this in and of itself does not clear title. This is somewhat of a “buyer beware” rule that places the burden more on the buyer when it comes to finding defects. Again, these types of rules can affect the way the insurance policy is written.
• Named beneficiaries: There can sometimes be confusion as to which parties are actually covered by the insurance. For instance, if the transfer is being made as a gift or as a devise in a will, it can be difficult to tell which parties are affected by the transfer.
No one wants the past to come back and bite the home buyer this way, which is why the title insurance company will perform a “title search” as its first task before issuing the policy. The search involves combing through public records concerning the house — including past deeds, wills, trusts, divorce decrees, bankruptcy filings, court judgments, and tax records.
The resulting preliminary title report (sometimes called a “title insurance commitment,” or “commitment of title,”) gives everyone a chance to eliminate trouble spots before proceeding with the sale — or to call the sale off, if anything too serious is uncovered. It also lets everyone know the conditions under which you’ll be offered insurance. For example, some things that can’t be known or cleared up will be excluded from coverage.
Fortunately, you shouldn’t be the one who has to act on any title defects. Since you’re being promised clear title, any clouds that emerge are the seller’s problem, not yours. The closing agent will normally call the seller’s real estate agent if the report shows a defect. Most sellers agree to pay off any liens through a deduction from the purchase money at closing.
Many title insurance legal disputes end up being litigated in a court of law due to their complexity. Remember banks and homebuyers have different interests when examining title. If you have any legal disputes, issues, or concerns involving title insurance, it’s in your best interest to hire a qualified real estate lawyer. An experienced attorney can also lend their advice during home sales and insurance negotiations.