Paul Maisano Designs
DRN Title Search
Register
Log In
Forget your Password?

Home
Directory
Bulletins
Forums
Blogs
Articles
Links
Classifieds
About Us
Contact Us
Advertise
FAQ
Privacy Policy


Patrick Daly's Blog

Title Insurance Doesn't Insure Good Title
by Patrick Daly | 2012/02/20 |

I have handled title insurance claims for three different underwriters (two national, one regional).  As you are probably aware, most claims are submitted by foreclosure firms on lender's policies, as their pre-foreclosure title search has revealed some title issue.  I continue to see a common misperception in claim letters from foreclosure firms regarding the coverage afforded by a title insurance policy.  Specifically, insured claimants are frequently of the opinion that the title insurance policy insures that the insured has good title.  It doesn't.  Rather, the title insurance policy insures against actual monetary loss occasioned by one of the covered risks.  The distinction is important, as many claimants (operating under their erroneous belief that the policy insures good title) believe that the insurer must clear the title so that it is "good."  The policy contains no such obligation.  In fact, the burden is on the claimant to prove that a defect has caused the insured to suffer a loss.  Absent such a loss, the claim can be denied (in the 2006 ALTA policy jackets, see Exclusion 3.(c)).  I received a claim today, the claim letter for which states that title insurance insures that title must clear.  No, it doesn't.  Claim denial letters routinely being with the following:  "The nature of the Insured's policy of title insurance is that of a contract of indemnity under which an insurer will indemnify an insured against loss suffered according to the terms and conditions of the policy."  In other words, title insurance is a contract of indemnity, and not a guarantee of title.  A Maryland appellate court has held the same.  See, e.g., Stewart Title Guaranty Co. v. West, 110 Md. App. 114 (1996).  Now that I have that out of my system, let me return to writing "no loss" denial letters.

Patrick Daly's Blog ::




Rating: 

430 words | 2510 views | 5 comments | log in or register to post a comment


Interesting distinction...

I have to admit that I have always used the shorthand statement that "title insurance insures marketable title."  You are correct, however, that it should more accurately be state that "title insurance insures against loss or damage by reason of unmarketable title." 

I am not sure, however, that I agree with you that there is not a loss in some of these cases.  It would, of course, depend on the facts and circumstances of each case.  For example, if the property was worth $200,000 assuming marketable title, and it appraises for only $150,000 when a title defect is discovered, I would say that the insured has suffered a loss by reason of unmarketable title.  I don't think the insured has to actually sell the property and actually realize a loss to have coverage.

If the defect renders the title unmarketable, I believe that the insured has suffered a loss and the insurer has an obligation to pay the claim, or exercise its option to clear the title.  I do not believe that it can deny the claim and do nothing until the insured sells the property and actually realizes the loss.  In fact, I would think that in most cases it would be in the best interest of the insurer to clear the title before such loss is realized (that could cost even more).

Of course, if the defect isn't serious enough to render title unmarketable, such "no loss" letter would be appropriate.

Interesting discussion. Thank you for posting on the topic.

Best,
Robert A. Franco, J.D., LL.M.
SOURCE OF TITLE

 
by Robert Franco | 2012/02/21 | log in or register to post a reply

Agreed...
I did not mean to suggest that a property would have to be sold in order to realize the loss, and I am in agreement that an appraisal showing a diminution in value is sufficient to establish an actual loss (subject, of course, to the battle of the appraisers).  The diminution in value approach is frequently used--in the ALTA '06 loan policy jacket, see Paragraph 8 of the Conditions regarding this analysis (and in particular, Paragraph 8.(a)(iii)).  That being said, the insured needs to show that an alleged defect has impaired the value.  Nearly all of the claims that I receive do not even attempt to show a negative effect on value (hence the no loss analysis from my original post).  
by Patrick Daly | 2012/02/21 | log in or register to post a reply

That makes sense...

I'm sure not every alleged defect causes a loss of value.  In fact, I remember a good story shared by an examiner I used to know.  She searched a large agricultural property and missed an easement, I think it was a natural gas line.  The farmer noticed and filed a claim on his title policy, alleging that he could not farm the east 10' of the property and would suffer lost revenue, thus the property was worth less than he paid. 

The examiner knew somebody at the gas company, like the vice president.  The V.P. called the farmer and said "if you don't like the easement, we will be happy to abandon it so you can farm that easterly 10 feet of the property.... but you should know that the gas line provides service to your farm."  The farmer withdrew his claim.

It's been a long time, so my facts might be a little fuzzy, but that is the gist of the story relayed to me.

 

 
by Robert Franco | 2012/02/21 | log in or register to post a reply

Post foreclosure exceptions

Can you tell me if there are mol standard exceptions now on policies

on purchases of foreclosures (and yes, I'm thinking in regard to the foreclosure and good title)?

 
by john gault | 2012/05/05 | log in or register to post a reply

Related Question

If there are mol standard exceptions, will title insure around?  Are they insuring over / around these exceptions routinely, and if so, at what cost? Thanks

 
by john gault | 2012/05/05 | log in or register to post a reply
Patrick Daly's Blog

 

Links

Recent Comments

If there are mol standard exceptions, will title insure around?  Are they insuring over / aroun...
by john gault
Can you tell me if there are mol standard exceptions now on policies on purchases of foreclosures (...
by john gault
I'm sure not every alleged defect causes a loss of value.  In fact, I remember a good story ...
by Robert Franco
I did not mean to suggest that a property would have to be sold in order to realize the loss, and I ...
by Patrick Daly
I have to admit that I have always used the shorthand statement that "title insurance insures m...
by Robert Franco
Categories

     
    © 2007, Source of Title.