Bankruptcy problem illustrates the value of title insurance


October 17, 2004

Dear Mr. Azrael:

Earlier this year, my wife and I sold our condominium in Crofton and purchased a single-family home from a family in bankruptcy in Elkridge.

A Maryland judge approved the sale by the bankrupt family through a court order.

Six days later, we were informed that the single-family home had been sold again at a foreclosure auction. After tracking down some of the principals by telephone, I was told that there was really nothing I could do and that I shouldn't call back because the principals involved would be too busy to speak with me.

At this point, our title insurance has kicked in and a claim has been filed by a lawyer representing us to figure out what happened. A hearing has now been set at the Howard County courthouse to determine what happened.

Have you had previous experience with such a situation? I'm just curious if others have had the same problem.

Dear Reader:

Your situation points up the value of title insurance. Although title problems occur infrequently, the consequences of a defective title can be serious and costly. For a modest one-time premium charge, you have insurance coverage against claims, which could equal the price you paid for the property.

Title issues often arise when one or more of the sellers has filed for bankruptcy. The sale often requires formal approval by the U.S. Bankruptcy Court.

Title problems also arise regularly where the record owner of the property is deceased or has judgments or tax liens recorded against him. Usually, these issues become known during the title examination and are resolved before closing. Title insurance kicks in when the issues are not cleared up and claims against the property are made after closing occurs.

In your case, the validity of the foreclosure sale might depend on whether it occurred after the owner filed for bankruptcy.

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