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Source of Title Blog

A Reminder of Why Title Insurance is so Important
by Robert Franco | 2021/03/07 |

I have been in the real estate business since 1993.  I started as a title examiner, then became a title insurance agent, and now I am a real estate attorney.  I am no longer a title agent, but I still wholeheartedly recommend title insurance to my clients.  Because claims on title insurance policies are rare, some buyers are reluctant to pay for something perceived as "optional."  Recently, a good example of why title insurance is so important landed on my desk.  This will serve as an example I can share with my clients to explain why they need the protection title insurance provides.

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Here is a timeline of events derived from the recorded documents in the chain of title, the Auditor's records, and some of the off-record matters as provided by Google:

January 1997:  Frank Johnson acquired title to a vacant lot for $24,000.00.  

September 1998:  Frank Johnson conveyed the property to Joan Johnson, a related party in an exempt transaction (no price shown on the conveyance).

March 9, 2006:  Joan Johnson executed a Durable Power of Attorney, naming Steve Williams as her agent.  

Interestingly, this power of attorney was prepared a very good, local estate planning/probate attorney, whom I will refer to as Attorney One.  It is noteworthy because of the multiple attorneys involved in the subsequent events. 

March 22, 2006: Joan Johnson executed a Notice of Revocation of Power of Attorney. It quite simply stated "... I do hereby revoke the Power of Attorney given to Steve Williams empowering said Steve Williams to act as my true and lawful attorney in fact... and I declare that all power and authority granted under said Power of Attorney is hereby revoked and withdrawn." 

March 23, 2006:  The Notice of Revocation of Power of Attorney was recorded with the county recorder's office.

This Notice of Revocation was prepared and recorded by a different attorney, Attorney Two.  I did not know this attorney, and he has since retired.  I get the impression from a Google search that he was primarily a divorce and criminal defense attorney.  It is unclear why Joan Johnson would have gone to see another attorney to revoke the power of attorney just a couple of weeks after seeing Attorney One to sign it.  

March 20, 2015:  Steve Williams, as attorney-in-fact on behalf of Joan Johnson executed a General Warranty Deed conveying the property to Steve Williams, Trustee of the Johnson Irrevocable Living Trust.  The Warrant Deed and The Durable Power of Attorney were recorded with the county recorder's office, the same day.  The conveyance was reported as a sale for $126,890.00.  

The Warranty Deed was prepared by Attorney Three, another very good, local estate planning attorney.  Attorney Three also recorded both the Durable Power of Attorney (prepared by Attorney One) and the Warrant Deed.  Because I'm somewhat familiar with this particular attorney's practice, as an elder law attorney, I believe that he would have also prepared the Trust Agreement.  And, because it was irrevocable, I would bet that it was done for the purpose of Medicaid planning. 

 January 15, 2017:  Joan Johnson died.  

Joan's obituary described Steve Williams as one of her "dear friends."  If I had to speculate (and this is pure speculation), I would guess that a family member found out that a "friend" had been appointed as Joan's attorney-in-fact and took her to see Attorney Two to revoke it.  I doubt Steve Williams or the other two attorneys were aware of that visit to Attorney Two.  

May 24, 2018:  Steve Williams, Trustee of the Johnson Irrevocable Living Trust, executed a Trustee's Deed to Mary Smith, with fiduciary covenants.   

June 5, 2018:  The Trustee's deed was recorded with the county recorder's office. The records show that this was a sale for $175,000.00.  

The Trustee's deed was prepared and recorded by Attorney One.

August 18, 2020:  A local title company issued a title commitment for a proposed sale from Mary Smith to Jack and Jill Brown for $125,000.00.  However, the title company reported that title is still vested in Joan Johnson because the conveyance purporting to convey the property to the Johnson Trust was executed using a power of attorney that had been revoked, and therefore the deed is void.     

When I was consulted by the Browns, I reviewed the title company's title work and I agreed with their conclusion that the deed to the Johnson Trust was void.  Mary Smith did not acquire legal title from the Trustee's Deed.  The Browns asked Mary to contact me to discuss how to proceed so the property could be sold.  This would require a quiet title action to fix.

My first question for Mary was, "do you have any Owner's Policy of Title Insurance?"  The answer was "no."  Title insurance insures the owner against "loss from unmarketable title."  

Courts in Ohio have defined marketable title as "that which imports such ownership as insures to the owner the peaceable enjoyment and control of the land as against all others."   Carr v. Acacia Country Club Co., 2012-Ohio-1940 (8th Dist.), citing, McCarty v. Lingham, 111 Ohio St. 551 (Ohio 1924).  Although the ability to obtain title insurance doesn't always mean title is marketable, the inability to obtain title insurance is a pretty good indication that title is not marketable.  

Courts have further noted that "it should appear reasonably certain that the title will not be called in question in the future, so as to subject the purchaser to the hazard of litigation with reference thereto.Id.  If the attorney-in-fact who signed the deed to the Johnson Trust lacked authority - which seems pretty clear from the recorded Notice of Revocation - the deed was void, or at least voidable.  Either way, it clouds the title with uncertainty and potential litigation.  

If Mary had title insurance, it would have mostly likely paid the costs of curing this defect.  Without it... and this is what I tell my clients that are reluctant to pay for an owner's policy... the only recourse for a title defect is to sue the seller under the warranties of title contained in the deed.

By statute in Ohio, general warranty covenants assure the grantee that "at the time of the delivery of that deed the grantor was lawfully seized in fee simple of the granted premises, that the granted premises were free from all encumbrances, that the grantor had good right to sell and convey the same to the grantee and the grantee's heirs, assigns, and successors, and that the grantor does warrant and will defend the same to the grantee and the grantee's heirs, assigns, and successors, forever, against the lawful claims and demands of all persons."

But, here there were two problems.  First, Mary acquired title via a Trustee's Deed with "fiduciary covenants," not "general warranty covenants."  Fiduciary covenants provide only that "at the time of the delivery of that deed, the grantor was duly appointed, qualified, and acting in the fiduciary capacity described in that deed, and was duly authorized to make the sale and conveyance of the premises; that in all of the grantor's proceedings in the sale of the premises the grantor has complied with the requirements of the statutes..."  It does not appear that there was any question regarding the Trustee's appointment and authority, but rather that the deed to the Trustee was void and he didn't hold fee simple title.  

The second problem was that even if Mary did get a General Warranty Deed, Joan Johnson had passed away and there is little recourse that can be had on a claim for breach of warranties.  

In order for Mary to sell the property to the Browns, she is going to have pay for the quiet title action.  It will likely take several months to get a resolution through the courts, particularly with COVID causing delays to civil proceedings.  And, she will incur legal fees, court costs, publication expenses, etc.  Ironically, she will also pay a premium for a Preliminary Judicial Report, for the title evidence required by the court to bring the quiet title action.  This will all add up to several times more than the $975 premium an owner's policy would have cost when she purchased the property.

The moral of the story is, of course, always get title insurance.  But not just because it would cover the costs to mend this broken title.  If Mary had asked for title insurance, it is very likely that the revocation of the power of attorney would have been discovered then - before she made the purchase.  

Feel free to share your thoughts below.   

Robert A. Franco, J.D., LL.M.



Categories: Real Estate Law, Title Problems

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Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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