Many people who choose to purchase a home or an interest in real estate choose to buy title insurance. Title insurance is a contract formed with an insurance company, where they certify the property will have marketable title. If not, the title insurance company will indemnify the owner of title insurance for any loss associated with a defect in the title to the land they want to purchase. Defects in the title usually will make the title unmarketable because of some encumbrance, such as a mechanics lien on the property.
How Can I Recover My Title Insurance Benefits?
In some cases, an owner of title insurance will be damaged from a defect in the title to the real estate they have an interest in. When this happens, the title insurance company is supposed to pay the owner the benefits under the policy. If they do not, an owner can still sue to recover those benefits if they can prove:
- The title insurance company issued a title insurance policy,
- The title insurance policy covered the property they were interested in,
- The owner of the title insurance policy was the named beneficiary of the title insurance policy,
- The title turned out to be defective, encumbered, or unmarketable,
- The defect, encumbrance, or unmarketable title was within the coverage of the title insurance policy,
- The owner of the title insurance policy suffered an actual loss from the defect, encumbrance, or unmarketable title, and
- The owner of the title insurance policy filed a claim with the title insurance company for their benefits, and it was on time.
The owner of the title insurance may also be required to show that they complied with any of the title insurance company's "notice of claim and proof of loss" requirements.
Are There Any Defenses?
A lawsuit against a title insurance company can generally be defended in several ways:
- The title was not defective,
- The owner of the title insurance policy did not comply with the "notice of claim and proof of loss" requirements,
- The title insurance company did pay all the appropriate benefits, and
- The defect, encumbrance, or unmarketable title was except from coverage.
What Defects or Encumbrances are Typically Exempt From Coverage?
In certain cases, a defective, encumbered, or unmarketable title will not be covered by a title insurance policy. This means that if one exists, the owner of the title insurance company cannot collect any benefits. Some examples include:
- Particular defects, encumbrances, or unmarketable titles that are not expressly included in the title insurance coverage. A typical example would be water or mineral rights.
- Defects, encumbrances, or unmarketable titles that could not have been discovered by looking through public records. An example would be a "Wild Deed."
- Defects, encumbrances, or unmarketable titles that could have been discovered by an accurate survey.
- The rights of the person who is in possession of the insured property.
What Benefits Can be Recovered?
Usually, in a successful lawsuit to recover title insurance benefits, an award will be limited to the difference in value between the property with a title defect, and the value of the property without a title defect. Depending on what the defect, encumbrance, or unmarketable title issue exists, this difference can be substantial.
Do I Need an Attorney to Recover Title Insurance Benefits?
If you think you are being denied title insurance benefits from your title insurance company, it is strongly recommended for you to contact a real estate attorney or contract attorney who has some experience dealing with insurance companies. Only an attorney will be able to explain the issues and help to protect your rights.