Last week we discussed the documents that you should make sure you keep after buying your home, or any real estate. One of those documents is your title insurance policy. This document is probably the one real estate document that is the most commonly missing from our clients’ records. Not much more than half of our clients can initially locate their policy. 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. 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 be responsible to pay to clear your title to the property.
With most real estate sold in the last 30 years or so, the seller paid the premium for an owner’s policy of title insurance, usually out of the sale proceeds. The policy remains in full force and effect as long as you own your home, and thereafter if you transferred ownership of the home to the buyer with a warranty of title. When you transfer real estate with a warranty deed, you are warranting or guaranteeing that you own the property and you are giving clear title to the buyer.
On the other hand, if you transfer the home with a quit claim deed, all you are saying is that you are giving any interest you have in the home to the buyer. And you may have nothing. Because of this, you should generally never, accept a quit claim deed from the seller when you are purchasing property. Since you are not giving a warranty of title on a quit claim deed, when using one to transfer your home to your trust, you may no longer have the protection of your title insurance policy.
Do you know where your title policy is? It is not given to you at the closing on the sale of your home. Since the title insurance policy premium isn’t paid until closing and the policy cannot be issued until after your deed and mortgage, if any, are recorded, you typically receive your title insurance policy in the mail a month or two after closing on your home.
You typically receive your title insurance policy in a letter-size envelope It is usually five to seven 8½ by 11 inch pages stapled together. The policy usually has at least four pre-printed pages and two or three schedule pages. The pre-printed pages generally include standard policy provisions. These pre-printed pages are sometimes called the policy jacket. On the schedule pages is printed information regarding your home with, among other things, the legal description of your home and how it is titled, along with a listing of any liens, easements, restrictions or reservations of record.
When you receive your title insurance policy, review to make sure that your name is spelled correctly and 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, when you are alive and well, than when you are not.
We had one case in which a couple thought they owned their home in which they were living for the last twenty years. Both their deed and their title insurance policy named someone else who tried to purchase the home before them, but the sale fell through. The deed was never changed when they closed on their home, which they purchased for cash after downsizing. It cost the title company over $5,000 in legal fees to put the home into their names.
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, without a title insurance policy, you may be liable to foot the bill personally for all the legal fees or other costs that are necessary to make sure that the title to your home is clear.
We had another case in which our client was selling her restaurant which she bought on a land contract without title insurance. Before closing, we discovered that she did not own her restaurant. When she paid off her land contract, she never received a deed from the land contract seller. Come to find out that none of the previous three owners, who also bought on a land contract, had received a deed from their land contract sellers. We had to track down the four previous sellers or their relatives; one of those sellers had passed away, and another was mentally incapacitated without a financial power of attorney. It cost our client over $15,000 in legal fees, but after nearly a year and several probate court hearings, we were able to get all the necessary deeds to put the restaurant in our client’s name so she could sell it.
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 fifteen years. If any claim comes up in the future against a parcel that you have owned in the past ten 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.
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.
And you may be out of luck if your lost title insurance policy is with the nation’s largest title insurance company, Fidelity National Title Group, which also includes policies issued by Chicago Title Insurance Company, Commonwealth Land Title, Alamo Title Company, National Title of New York, Ticor Title, Western Title Insurance Company, World Title Insurance Company, Nations Title Inc., First Title Corporation, LandAmerica Financial Group, Lawyers Title Insurance Corp. and United Capital Title Insurance Co. Claims counsel for Fidelity National Title Group has stated that they do not have to keep records more than seven years and that records are destroyed, even for policies 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. Fidelity National is the only insurance company that I have ever encountered that claimed that they do not have records for insurance policies that are currently in force.
When I checked with the Michigan Department of Insurance and Financial Services, they confirmed 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’ve also had to file more than one complaint with the Michigan Department of Insurance and Financial Services to get Fidelity National to pay a title insurance claim or produce a policy.
Since Fidelity National’s records are “destroyed” after seven years, they may not have any records of your title insurance policy. If you have not kept a copy or other record of your policy and someone makes a claim against the title of your home, Fidelity National is off the hook because you cannot prove you had title insurance. I believe that this is just a scam by Fidelity National to get out of having to pay out title insurance claims, in order to continue, as stated on their website, their “strong track record of creating value for our shareholders.”
In order to protect you and your assets, you should have an original title insurance policy for every parcel of real estate you currently own or have sold within the last fifteen years. If you do not have a copy of the 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. The complaint form can be found at http://www.michigan.gov/documents/cis_ofis_comp_all_25074_7.pdf.
By: Matthew M. Wallace, CPA, JD
Published edited August 26, 2018 in The Times Herald newspaper Port Huron, Michigan as: Where is your title insurance policy