Top title insurance claims (6 - 10)
Part 2 of a series
Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Company in D.C.
For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who's planning to buy a home.
6. Mortgagors holding over after foreclosure. A claim will almost invariably arise when title derives from foreclosure and the mortgagor (borrower) whose property interest was extinguished in the foreclosure sale remains in possession of the property. The claim is precipitated when the successful bidder at the foreclosure sale seeks to evict the former owner/mortgagor in an action for possession, who will respond with a plea of title seeking to invalidate the foreclosure sale. The plea of title gives rise to a duty of defense and indemnification to the foreclosure sale buyer who purchased an owner's title insurance policy.
Because of the near certainty of litigation giving rise to a duty of defense under the title policy issued, First American Title Insurance will not insure title out of foreclosure when the mortgagor remains in possession of the property. Foreclosure requirements listed in your commitment for title insurance should be amended as follows:
I. Recording of Notice of Foreclosure in the Office of the Recorder of Deeds for the District of Columbia pursuant to which captioned property is sold to the proposed insured.
II. Proof of mailing of the notice by certified mail with return receipt to the record owner, complying with the District of Columbia Code and the terms of the Deed of Trust relating to notice of sale.
III. Proof of Publication of Notice in the Washington Post of other English language newspaper with general circulation in the District of Columbia. The proof also must establish that the notice was published five times within a 10-day period.
IV. Certificate of Sale and Auctioneer's Report
V. True copy of Deed of Trust note.
VI. Copy of Affidavit in compliance with Soldier's and Sailor's Civil Relief Act of 1940.
VII. Proof of notice of the sale to all junior lien holders known or of record.
VIII. Proof that possession of the premises has been surrendered to the insured owner/or assigns.
More info: Mortgagors Holding over after Foreclosure
7. Survey issues. A surprising number of claims in D.C. are caused by survey issues. They frequently involve bitter disputes between neighbors, resulting in lengthy and expensive litigation.
In D.C. survey coverage is not given to owners based on a house location survey except with special approval. When a house location survey is provided for closing, the general survey exception should remain in the owner's policy, including Eagle policy. You should read the plat into the owner's policy as well as the loan policy, taking specific exception to matters adverse to title shown on the plat. The survey should be reviewed with the buyer(s) by the settlement officer, who should point out those survey matters which exception is taken. The buyers should sign off on a copy of the plat to be maintained in the settlement file.
8. Disclosure issues. Recently, there has been a surge of litigation stemming from claims of breach of the duty of reasonable care by settlement attorneys who fail to advise purchasers of real property of the title consequences of certain matters of record. Various types of historic preservation easements given by prior owners of record have proven to be particularly problematic. These are not title insurance claims, but claims of negligence on the part of settlement attorneys.
Without going into lengthy discussion of the duty of care of a settlement attorney or settlement company, all of you should be sensitive to directing attention to matters of record which will affect the use and enjoyment of the property by the new owners, such as survey matters, easement issues and restrictive covenants. If possible, it is a good idea to send a copy of the title insurance commitment and survey to the buyers in advance of closing.
If, for whatever reason, you are not providing title insurance coverage for matters which a buyer could reasonably expect such coverage, you must disclose that fact and get a written waiver of coverage. These matters could include TOPA rights, mortgagors holding over after foreclosure, title to parking spaces, easement rights, pending litigation and unpaid taxes and assessments, although this list is by no means comprehensive.
9. Parking space claims. We have dozens of them!
For example, a parking space is listed in the contract but overlooked in the title order and neither conveyed nor insured. If the contract references parking, we have a claim even if the space is not included in the legal description in the policy.
OR – limited common element parking spaces are not properly assigned by amendment to the condo docs and the appropriate exception is not taken in the policy.
OR – the A & T number for the parking space is not included in the FP-7C and the tax bills continue to go to the prior owner, who does not, of course, pay the bills or forward them. The parking space is then sold at tax sale, and we have a claim.
*Pay attention to parking spaces! In many areas of D.C. they are now worth a small fortune!
10. Eagle policy schedule of caps and deductibles. Don't forget to include it when issuing Eagle policies! If the schedule of limitation of liability is not included with the policy, the argument can be made that there is no limitation on liability, thereby drastically increasing the potential amount of coverage for certain risks.
About the author
Elisabeth Zajic is a vice president and senior counsel at First American Title Insurance Corporation in Washington, DC.