Most insurance lines are based on unknown individual event liabilities – that is, it is not known where a claim will occur or when. No one can predict with certainty, where a hurricane will hit or when or how destructive it might be; no one can predict who will get what disease and what it might cost to treat it. Insurance is based on average claims in the past, projected into the future.
Title insurance is different – the liability for every insured home is known in advance of the insurance policy being written. The base of the American land recording system is that all “events” that affect a piece of property are publicly disclosed by means of the recordation of a document at the County Recorder’s office. The County Recorders are required to give “constructive notice” of all actions related to all properties in their counties. Every change in property ownership is recorded; all liens are recorded; every mortgage is recorded; notices are recorded; judgments are recorded; easements are recorded; anything that affects a property is recorded in the public record system, which is maintained by the County Recorders Office and made available to the “public”—generally, at no cost.
If all risks are known in advance, why does the title insurance industry have claims ratios ranging between 4% and 12% of premiums?
Claims usually occur due to errors in the title plants or errors in searching and examination of the documents. Claims also occur due to fraud and other reasons.
This article explores some of the common errors that title companies attempt to detect and resolve.
The most common errors generally detected and resolved by the title companies.
It is in the interest of the title agencies to resolve errors when they occur. The claim process itself is costly, often involving attorneys and litigation. Title companies often correct the following types of problems internally, or through informal negotiations with the parties to the sale.
Incorrect posting in the Title Plant:
Errors may be caught by the searcher and corrected before any damage is done.
Document errors from an incorrectly drawn up document may reference the wrong names or lot numbers. Indexing errors could introduce the wrong parties or legal descriptions into the plant. In instances such as this, the title company will prepare a correction document to remedy the situation, whether the error came from a title company’s document preparation or from an outside plant or another source. Correcting incorrect postings to the title plants has the benefit of improving the plant for future examiners, as well as improving the quality of the public record archive.
Unreleased or improperly released mortgages:
The title company will attempt to obtain a proper release of an unreleased mortgage; this may require extensive work if the lender is no longer in business or the original lender has been acquired by a larger company, perhaps in another state. Some states have enacted legislation allowing the title company to prepare and record a release with an attached affidavit setting forth proof of the payoff. This has reduced the number of claims filed by owners looking to clear title to their property.
Priority of lien:
Sometimes mortgages are recorded in the wrong order, second before first mortgage, or a lien is missed due to an erroneous date-down of property prior to recordation. The title company will attempt to obtain a subordination to change the priority of the lien. If the attempt to correct the priority is unsuccessful, a claim can result.
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