Your Deed is Not Your Title

Just Because You Received A Deed, It Doesn't Necessarily Mean You Own The Property Free And Clear Of All Other Claims And Interests.

Consider the following:

Mr. and Mrs. Smith's closing went beautifully. The sellers left for their new home in California and the Smiths moved into their new home that same night.

However, about two months later, Mrs. Smith called her attorney's office in a state of panic. She had just received a notice from the town Tax Collector that a three-year-old tax bill on the property had not been paid. The Tax Collector told her that the town had a lien on the property and that even though the bill was originally against a former owner, she and her husband, as the new owners, were now responsible for payment.

"You told us we owned the house free and clear except for our mortgage. You should have discovered this lien when you did the title search on the property. What are you going to do to take care of this?"

When the attorney checked the recording information provided by the Tax Collector, it was clear that the lien had been improperly indexed and that the attorney was not at fault for failing to discover it. Nevertheless, this was the type of risk that would be covered by the Smiths' title insurance policy, provided they had purchased an owner policy when they bought their home.

Unfortunately, they had purchased only a policy insuring the lender and had waived their option to purchase an owner policy. Their only choice was to pay the amount of the lien and attempt to recover the payment from the sellers.

Title insurance policies can be purchased for lenders (called a mortgagee policy) or for owners (called an owner policy) or for both. Because the lender is relying on the borrower's property as security for repayment of its loan to them, lenders almost always require title insurance to protect themselves against loss as a result of a defect in the title to the property. The premium for this policy is just one of several expenses connected with the loan which the lender requires the borrower to pay as a condition of making the loan to them. However, even though the borrowers pay for the policy, they are not the insured. As new owners, the borrowers can be insured only by purchasing an owner policy as well.