Title Defects and Insurance Coverage: Protecting Your Property Investment

When purchasing a home, you expect a clean transfer of ownership. But what happens when title issues or defects emerge after closing? Understanding how title insurance protects you can save thousands in legal fees and prevent ownership disputes.

What Are Title Defects?

Title defects are problems with property ownership that can affect your legal rights. Common issues include:

• Liens from previous owners’ unpaid debts
• Errors in public records or property indexing
• Fraudulent transfers or forged documents
• Undisclosed heirs claiming ownership rights
• Boundary disputes and survey errors
• Improperly recorded deeds or trust documents

These defects can surface months or even years after purchase, threatening your investment and peace of mind.

How Title Insurance Protects Homeowners

Title insurance differs from other insurance types because it protects against past events rather than future risks. When you purchase a home, you typically receive two policies:

Owner’s Title Insurance

Protects you against financial loss from title defects existing before your purchase. Coverage typically includes:

• Legal defense costs against ownership claims
• Financial compensation for covered losses
• Protection against fraud and forgery
• Coverage for recording errors

Lender’s Title Insurance

Protects your mortgage lender’s investment (required by most lenders but doesn’t protect you personally).

Expert insight: Always purchase owner’s title insurance. While it’s a one-time premium paid at closing, it provides protection for as long as you own the property.

Warning Signs of Title Problems

Be alert to these red flags that may indicate title issues:

1. Multiple MERS numbers associated with your property address
2. Incorrect property geocoding or indexing in county records
3. Missing realty transfer certificates at the county level
4. Pending probate or estate litigation involving previous owners
5. Discrepancies between your loan documents and public records

Learn more about property title searches and why they matter.

Steps to Take When You Suspect Title Defects

1. Contact Your Title Insurance Company

Your title company should be your first point of contact. They have:

• Resources to investigate the issue
• Legal obligation to defend your title
• Financial responsibility for covered defects

2. Gather Documentation

Compile all relevant documents including:

• Your title insurance policy
• Closing documents and deed
• Property tax records
• Any correspondence about the issue

3. Request a Chain of Title Report

A comprehensive chain of title report traces property ownership history and can reveal:

• Transfer irregularities
• Unreleased liens
• Recording errors
• Ownership gaps

4. Consult a Real Estate Attorney

If your title company cannot resolve the issue, seek legal counsel. Many real estate attorneys offer initial consultations to review your documentation.

Common Title Insurance Exclusions

While title insurance is comprehensive, certain issues may not be covered:

• Defects you created after purchasing
• Issues disclosed before closing that you accepted
• Zoning violations or building code issues
• Environmental hazards like contamination
• Boundary disputes arising after purchase (unless you bought extended coverage)

Review your policy carefully to understand your specific coverage.

The Role of Property Indexing and Geocoding

Counties use various systems to track properties, including:

• Parcel numbers (unique property identifiers)
• Geocodes (geographic coding systems)
• FFIEC geocoding (used for federal reporting)

Indexing errors can create serious problems, including properties being associated with incorrect locations or multiple properties sharing identifiers. These technical issues require professional resolution through county records offices.

Understanding MERS and Mortgage Recording

The Mortgage Electronic Registration Systems (MERS) tracks mortgage ownership electronically. Each loan receives a MIN (Mortgage Identification Number). Problems arise when:

• Multiple MIN numbers exist for one property
• Your loan isn’t properly registered
• Documentation doesn’t match MERS records

These discrepancies may indicate recording errors or, in rare cases, more serious issues requiring investigation.

Protecting Yourself in Future Real Estate Transactions

To minimize title risk:

1. Always purchase owner’s title insurance – it’s typically 0.5-1% of purchase price
2. Review the preliminary title report carefully before closing
3. Ask questions about any liens, easements, or exceptions
4. Hire an experienced real estate attorney for complex transactions
5. Verify property boundaries with a current survey
6. Research the property’s history independently when possible

When to Escalate Your Concerns

If you believe you’ve encountered fraud or your title company is unresponsive:

• File a complaint with your state’s Department of Insurance
• Contact your state’s real estate commission
• Consult with a real estate litigation attorney
• Report suspected mortgage fraud to the FBI or state attorney general

The Bottom Line

Title insurance exists to protect you from hidden ownership defects that predate your purchase. While title issues can be complex and stressful, your title insurance policy and title company should provide the resources needed to resolve most problems.

Don’t wait if you suspect title defects. Early detection and action can prevent minor issues from becoming major legal battles. Your property is likely your largest investment—protect it by understanding your title insurance coverage and acting promptly when problems arise.

Additional Resources

• American Land Title Association – Industry standards and consumer information
• Consumer Financial Protection Bureau – Mortgage and title insurance guidance
• Local county recorder’s office – For property records and filing information
• State bar association – For real estate attorney referrals

---

Have questions about title insurance or property ownership issues? Understanding your rights and coverage is the first step toward resolution. Always consult with qualified legal professionals for advice specific to your situation.