48.8 Million Homeowners at Risk, ALTA® Warns; An Estimated 40 Percent of U.S. Homeowners Don't Have an Owner's Policy of Title Insurance
September 27, 2004
WASHINGTON-- Sept. 27, 2004-- The American Land Title Association (ALTA), the national trade association for the title insurance industry, warns that millions of U.S. homeowners may not be protected in the event of a challenge to the title to their homes and could face large legal fees and even risk losing their home. According to ALTA, while most homeowners have a Title Insurance Loan Policy protecting their lender, an estimated 40 percent of U.S. homeowners, representing 48.8 million(a) homes, do not have an Owner's Policy of Title Insurance to protect their investment.
"It is standard procedure in a home purchase or refinance transaction for the lender to require a Loan Policy to cover the mortgage loan," said James Maher, executive vice president of ALTA. "An Owner's Policy, which is optional in many states, covers the homeowner's investment, such as their down payment and equity up to the coverage limit. Unfortunately, many homeowners either don't know about it or don't think they need it, leaving them vulnerable."
How Title Insurance Works
When a buyer purchases a home, a title search is conducted to determine ownership of the property and whether any encumbrances exist that would prevent the free and clear transfer of title to the new owner. The title search reviews all recorded documents to uncover any judgments, liens, taxes owed, street easements, special taxes and levies, and other matters that could impact the status of the title. During a refinance transaction, a title search is still required by the new or existing lender to uncover any problems that may have arisen since the last policy was issued. However, the original Owner's Policy is in effect for as long as the owner (or their heirs) have an interest in the property. An ALTA survey revealed that title problems arise in one out of every four real estate transactions.
According to Maher, there are many unforeseen problems that can occur to threaten the title to a property, even if a proper title search was conducted. Examples include, but are not limited to, mistakes in the public record, previously undisclosed heirs claming to own the property, and forged deeds. For homeowners who purchase an Owner's Policy for a one-time fee at closing, the title company will negotiate these problems with third-parties and pay the claims and legal fees involved in defending the title. Following are three examples of situations that occurred, demonstrating the importance of having an Owner's Policy.
Example One: A Case of Fraud and Forgery
A fraudulent realty company searched public records to locate property with out-of-town owners, and forged and recorded a deed to a fictitious person. They then sold the property to an unsuspecting buyer, providing a notarized deed, also fictitious. When the real owners discovered what had happened, they immediately initiated legal action against the new owners claiming title to the same property. The Owner's Policy protected the buyer by paying all legal expenses and the claim by the out-of-state owners.
Example Two: A Case of Conflicting Wills
After receiving a house from his late mother, a man sold the property to a new owner. After the sale, the brother of the seller came forward to claim an ownership interest in the property, and was seeking a substantial amount of money as his share. Since the new owner had obtained an Owner's Policy, the title company paid the claim, along with an additional amount in legal fees incurred during the defense, allowing the new owner to remain in the house.
Example Three: A Case of Missing Heirs
A couple purchased a home from a widow whose husband died without leaving a will. Soon after the sale, the son of the late owner by a former marriage came forward to claim his share of the home, which resulted in an expensive problem for the couple purchasing the property. An Owner's Policy protected the couple by paying the claim from the missing heir and they were able to keep the house.
"In each of these examples, the homeowners could have lost their homes if they hadn't purchased an Owner's Policy," said Maher. "Most people think they are covered when they see title insurance on their closing statements, not realizing they may only have a Loan Policy."
For more information on title insurance, visit the Consumer Information page of the ALTA Web site at: http://www.alta.org.
The American Land Title Association represents title insurance companies and their agents nationwide on a variety of industry and legislative issues. Members of the Association search and insure land titles to protect real estate investors including homebuyers and mortgage lenders.
(a) According to the U.S. Census Bureau's report on Residential Vacancies and Homeownership released on July 29, 2004, for the second quarter of 2004, there are approximately 122 million homes owned in the United States.