Title claims are rare, but can be costly

March 06, 1994|By Lorraine Mirabella | Lorraine Mirabella,Sun Staff Writer

The husband and wife sold their home, went through settlement, then took off for Florida.

That's when the husband's first wife -- the true owner of the property -- showed up at Sentinel Title Corp. in Columbia. The second wife had forged the first wife's name.

Cases like that don't come up every day. But settlement attorneys say almost anyone buying or selling property could face a title challenge.

Title insurance protects owners and lenders, covering the property value in situations of forgery, fraud, claims by missing heirs, differing interpretations of property rights or mistakes -- recording errors or oversights during title searches.

Property buyers pay title companies to do 60-year title searches. The state requires a search that far back to give anyone who might have a claim a chance to step forward.

Sometimes developers buying land to subdivide request searches even farther back, to find out whether anything such as old railway easements ever existed.

A search might turn up something such as a pending suit questioning ownership or a mechanic's lien -- in a case where a contractor had not been paid.

Title companies generally would not settle the property until resolving those matters.

Insurance covers legal fees to defend a claim in court and a guarantee of a marketable and insurable title an owner can sell to someone else. Lenders' insurance covers the mortgage amount, while owners' insurance covers the sale price, with coverage increasing as the property value rises.

Owners' insurance typically costs $3.50 per thousand dollars.

If someone wins a claim, the title company pays the policyholder the full value of their property.

"When you think you may pay several hundred dollars, as opposed to the value of the property, it's cheap insurance," says Tee Tillman, senior vice president of Fountainhead Title Group in Columbia. "It's a personal decision. We as a title company remain neutral. As an attorney, I do advise them to take it. It's money well spent. [In a case of a claim] it will pay for itself in the first two hours of legal fees."

Most homebuyers choose to buy owners insurance. Others, such as those buying into an established subdivision, refuse it, believing they're highly unlikely to be faced with any claims.

"In a lot of cases they're right, but the costs are disastrous when there is a claim," Mr. Tillman says.

Sometimes boundary disputes arise in established subdivisions because surveyors have changed methods over the years, said Jeffrey M. Dreifuss, a settlement attorney with Sentinel Title Corp.

Surveyors used to go out on properties with a compass, but they switched to a grid system in the early 1970s.

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