When you bought your home, especially if it has been purchased in the last 30 years or so, you most likely had included in your purchase agreement that the seller provide title insurance for the transaction. The title insurance premium was paid out of the funds that you gave to the seller to purchase the home. But what is this title insurance, why do you need it and why do you care?
The purpose of title insurance is to protect your ownership in the home. With title insurance, if somebody later claims to have some sort of interest the home, such as a lien, easement or other claim, the title insurance company would pay to clear your title to the property.
Most title insurance policies remain in full force and effect as long as you have any interest in the home or when you sold the home, you transferred ownership of the home to the purchaser with a warranty deed. When you transfer real estate with a warranty deed, you use the words “convey and warrant” when transferring the property to the buyer. This means that you are warranting or guaranteeing that you own the property and you are giving clear title to the buyers.
On the other hand, if you transfer the home with a quit claim deed, you use the words “quit claim” to transfer the home to the buyers. By using these words, all you are saying is that you are giving any interest you have in the home to the buyer. And you may have nothing. Since you are not giving a warranty of title on a quit claim deed transfer, you may no longer have the protection of your title insurance policy.
Do you know where your title policy is? After you purchased your home, you’re so happy to get into your home, you may not have followed up with the title insurance policy. Your title insurance policy is not given to you at the closing on the sale of your home. Since funds from closing are used to pay the premium on the title insurance from the seller, you typically do not receive your title insurance policy until a month or two later.
That title insurance policy it usually five to seven 8½ by 11 inch pages which are stapled together. The first and last pages are preprinted on both sides which include standard policy provisions. These outer sheets are also called the policy jacket. On the inner pages is printed information regarding your home with, among other things, the legal description of your home and how it is titled.
You should go through your home documents and make sure that you have your title insurance policy that guarantees that the home title is in your name. Don’t just look to see if you have policy. Look at the printed inner pages. Make sure that your name is spelled correctly that the legal description is correct. We have seen on more than one occasion where names are wrong or the legal description is wrong on the title insurance policy. It is a whole lot quicker and easier to make changes to the policy immediately after the purchase. Trying to fix it years later. can be a real challenge.
When we prepare an estate plan for our clients, we have them provide information regarding their property and other assets. One of the things that we request is a copy of their title insurance policies. Typically, only about half of our clients can initially put their hands on their title insurance policies.
Without your title insurance policy, you are on your own. If something comes up in the future and somebody files a claim against the property, such as a lien, easement or encroachment, and if you do not have your title insurance policy, then you may be liable to foot the bill personally for all the legal fees or other cost that are necessary to make sure that the title to your home is clear.
If you cannot find your title insurance policy and know that one was paid for, you can request a duplicate replacement policy from the title insurance company. If you have no idea who the title insurance company was, maybe you can get that information from the closing agent, realtor or the title agency
I have had people ask me how long should title insurance policies be kept. I recommend that you keep the title insurance policies for any real estate you currently own or have sold within the last six years. If any claim comes up in the future against a parcel that you have owned in the past six years and that you transferred with a warranty deed, you could be on the hook for clearing of the title if you don’t have documentation that you have a title insurance policy.
One bad thing that I have come across on multiple occasions recently with four different title insurance companies, is that the title insurance companies are destroying records after six years subsequent to the sale of the real estate and title insurance policy was issued. I have found that the companies are destroying their records more than six years old, even for policies that are still currently in force.
This was very surprising to me. I have dealt with thousands of insurance policies over the years with numerous insurance companies. I regularly deal with life insurance policies which are eighty, ninety or more years old, being issued in the 19-teens or 1920’s. Until recently, I have never had an insurance company claim that they do not have any records for insurance policies that are currently in force.
Since the records are “destroyed” after six years, the title insurance company would have no records of your title insurance policy. If you have not kept a copy or other record of your title insurance policy and someone makes a title claim against your home, the title insurance company is off the hook because you cannot prove you had title insurance.
I checked with the Michigan Department of Insurance and Financial Services, who verified that there is no period of time for which title insurance companies are required to keep records. However, they did reinforce to me that it is only common sense that an insurance company should keep records for all policies that are currently in force.
I believe that this is just a scam by the title insurance companies to get out of having to pay out on claims. If you haven’t kept a copy of your title insurance policy and it has been more than six years since you bought your home, then the title insurance company may be off the hook for any title claim.
You should have an original title insurance policy for every parcel of real estate you currently own or have sold within the last six years. If you do not have a copy of the title insurance policy and know the name of the title insurance company that issued the policy, request a duplicate policy. If the title company refuses to issue a replacement policy, the Michigan Department of Insurance and Financial Services recommends that you file a complaint with them. Please see http://www.michigan.gov/documents/cis_ofis_comp_all_25074_7.pdf .
By keeping these title insurance policies in your records, you are protecting yourself and your assets from any adverse title claims.
By: Matthew Wallace, CPA, JD
Published edited February 2, 2014 in The Times Herald newspaper, Port Huron, Michigan as: Could you find your title insurance policy?