Quite a few people think of title insurance as a scam, but as a business that works in the real estate or title industry, you know better. Title insurance protects property owners and financial institutions against potentially devastating claims against their title or ownership of a property.
While only a fraction of property owners ever need to defend against the title claim, the process can often cost many thousands of dollars. A lender’s title policy protects financial institutions such as mortgage companies and banks against the loss of the money they provide to purchase a property that later has a title issue. A buyer’s title policy protects the property owner from the losses and costs associated with the title defect.
If your title company issued a policy that has since had a claim brought against it, you will need to take aggressive action or risk paying out many thousands of dollars.
Title claims have to be valid to be successful
People can’t just claim to own a property because they once held an interest in it and take the new owner to court. There needs to be some documentation that shows that there were unrecorded liens against the property or that other kinds of recording issues or fraud took place.
Title issues often arise in blended families where there are disagreements about the sale of a property as part of an estate, as well as in households after a divorce. Regardless of the nature of the title claim itself, your company will want to review its records to protect against the expense of a successful claim.
Documentation showing the research you performed and the public records at the time of the policy issuance can help you a fight against claims. An attorney familiar with real estate law and the complex nature of title claims will help your company as you move forward with the title defense process.
You can also defend against bad faith insurance allegations
Many people don’t really understand title insurance, which is part of the reason why they may choose to forgo a buyer’s policy at the time of their closing to save a few hundred dollars. When that later comes back to harm them because they lose the equity in the property after a successful claim against the title, they may take action against your business for failing to adequately research the title or for what they consider a bad faith insurance claim denial.
While it can be difficult, it is possible for a title insurance company to defend against claims made against their reputation after denying a claim by a policyholder. The sooner you take action when you know that a property you insured may be subject to a title claim, the better the chances are that your company can reduce or at least mitigate some of the consequences of a title.