Owner’s title insurance: Case of forgery after infidelity

Fraud is a common cause of title claims, and it's practically impossible to detect in many cases because there is no way for the title agent to know about the fraud until after the fact.

As we've discussed before, title insurance is about "risk elimination" of title problems arising from past events and not "risk assumption" of future events. If a title claim arises down the road, as was the case for the homebuyers in this story involving a forged power of attorney document, the owner's title insurance policy kicks in.

In 2001, Karen and Kirk purchased a home together and took title as joint tenants.

In 2005, Karen moved out after learning of Kirk’s infidelity.

In 2006, Kirk showed up at the closing table and presented the settlement attorney with a specific, full authority power of attorney signed by Karen and properly executed and sealed by a Notary Public.

Using the power of attorney, Kirk proceeded to sign the closing documents for his self and on behalf of Karen; including the deed and a disbursement authorization that directed all the sales proceeds be wired to his personal savings account.

At the closing, the homebuyers elected to waive owner’s title insurance coverage.

In 2011, the homebuyers were served with a lawsuit brought by Karen and her attorney claiming her interest in the property.

As it turned out, Karen’s signature on the power of attorney document presented at the 2006 closing had been forged and the Notary Public was complicit in the fraud.

As of 2012, the homebuyers have spent approximately $15,000 in attorney fees defending title to their property.

Had they elected to purchase owner’s title insurance coverage at the time of closing, they would have paid $850 and the title insurance underwriter would be paying the attorney fees to defend title.

If a homebuyer refuses to purchase an owner's title insurance policy and a title cloud arises down the road as in the story about Karen and Kirk, the homebuyer (new owners) would then be on the hook for any legal expenses. Without an owner's title insurance policy, money invested to buy the property or make improvements could also be lost.