When title insurance is needed, it’s worth every penny
I recently assisted a client who had purchased a home in Lakewood Ranch and paid cash. My office did not handle the closing, nor was I involved in any way with the real estate closing at the time. Rather, my client hired me about 7 months after the closing, because he had received a demand from an attorney to satisfy a mortgage of about $1 million or his house would be foreclosed on. My client was shocked. He had paid cash for the house and had no idea there was a mortgage encumbering it. He contacted me and I began investigating.
The previous owner had taken out a mortgage on the house when she purchased it several years ago. Seller mortgages like this are a common thing and they are typically satisfied in full at closing. In this situation, the title agency closing agent withheld the correct amount of funds from the seller’s net proceeds, and these funds were intended to be sent to the mortgage-holder to satisfy the seller’s mortgage. Of course, if everything went as intended, you wouldn’t be reading this blog post right now.
What happened next is surprising but, sadly, common in our industry nowadays. The title company fell victim to a wire fraud scheme and was scammed into wiring the sum of almost $1 million to an unknown recipient. While I certainly was not involved at the time, my understanding of the situation after-the-fact led me to the conclusion that, had a person from the title company simply picked up the phone to call the mortgage-holder on a “known-good-number,” they could have confirmed that the wire instructions were fraudulent. However, that was not done and so a fraudster made off with almost $1 million.
Further, and how it impacted my client, the true mortgage-holder never received the funds and so the mortgage was not satisfied of record and so it remained as a lien on my client’s property! And, of course, because the seller believed that her mortgage was satisfied, she ceased making payments on the debt (because why wouldn’t she?). Eventually, the mortgage-holder sought to enforce its security interest in my client’s property, which is when my client heard from the attorney who would be filing the foreclosure. My client was facing the prospect of possibly having to defend a foreclosure action for a loan he was not obligated on, and for which the funds intended to satisfy it were nowhere to be found.
Thankfully, my client purchased an Owner’s Policy of Title Insurance when he bought the property. This issue – a mortgage not being satisfied at closing when it should have been – is precisely the type of situation for which title insurance should provide coverage to the insured. I filed a claim on my client’s behalf under his title insurance policy. It took some time and a little bit of back-and-forth, but the title insurance company eventually accepted the claim and paid out a sum (now because of interest and other fees/costs) of over $1 million directly to the mortgage-holder to satisfy the mortgage. Yay, happy ending for my client.
This unfortunate situation, albeit with a happy ending, is an important lesson of the importance of purchasing title insurance. Title insurance is a one-time investment that can protect owners of real estate from financial losses due to certain title defects with the property.
In my client’s case, had he not purchased title insurance, he would have found himself in a very unfortunate situation. He may have had some defenses to put forward in a foreclosure action, but, whether or not the defenses would have been successful, he would have had to expend time and money to litigate the matter. That is never fun, especially when your actions had no contributory effect to the matter. And there is the possibility that he may have had to pay out of pocket to save his house – again, for a loan he did not owe.
Title insurance is an important part of the home buying process. If you are buying a home, purchasing title insurance can protect you from financial losses and headaches down the road.
For reasons like this, title insurance can give you peace of mind. Title insurance can also help you sell your property more quickly and easily as your buyer knows that when you purchased it, your “clean title” was insured.