A Document with Keys and a Pen

Types of Title Insurance Claims

Arnett & Arnett, PC Sept. 30, 2022

Purchasing a home is generally the largest investment people will make in their lifetime. Though homeownership is part of the American Dream, it is also risky if you don’t cover all the legal bases of events from the past resurface to haunt you and your dream.  

When your purchase a home through a lender, that company will require that you purchase a title insurance policy from a title insurance company. The title company will then do a search of public records to discover – or uncover – any outstanding obligations on the property in question. For instance, there may be unpaid taxes or a previous mortgage that has yet to be paid off. There could even be competing wills designating who actually owns the property.  

This type of title insurance is known as lender’s title insurance. In other words, it covers the investment being made by the lender.   

Title searches, however, are not always free of defects and oversights. Even after the lender is satisfied and grants the loan, an encumbrance from the past may surface. You might get a letter from the county months or even years later demanding payment of still-outstanding property taxes, which the title search failed to uncover. What do you do? 

You cannot file a claim with the lender’s title insurance policy because that policy covers only the lender. In short, you’re on the hook for coming up with past-due taxes unless, when you closed the purchase, you obtained what is called owner’s title insurance. If you did that, you can make a claim against that insurer, who will have to make good on the overdue taxes.  

If you’re a homeowner in Chandler, Phoenix, Tucson, or Flagstaff, Arizona, facing financial or other claims against you and the ownership of your property, contact the title insurance attorneys at Arnett & Arnett, PC. Our team can advise you on navigating the system. We have more than three decades of experience dealing with insurance companies and their stalling tactics when processing claims. 

Lender’s vs. Owner’s Title Insurance Coverage 

The Arizona Department of Insurance draws a clear distinction between title insurance obtained by the lender and title insurance obtained by the owner.   

A lender’s policy will pay the lender the outstanding amount due on an owner’s mortgage if the owner’s title to the property is voided by a “title defect.” A title defect means that the ownership of the property prior to its sale was either unsettled or there were issues involving liens or encumbrances on the property, such as the unpaid property tax example cited earlier.  

An owner’s title insurance policy protects the owner from liabilities arising after the purchase of the home, which could be the aforementioned unpaid taxes, a previous mortgage with an outstanding balance, or even a dispute over the property’s boundary with a neighbor. An owner’s title policy is optional, but you pay for it only once at the close of escrow. There are no ongoing premiums. You should receive a copy of the policy along with your other closing documents. 

Types of Title Insurance Claims 

While homeowners’ insurance protects the owner against future events, such as structural damage and even losses due to burglary, your title insurance policy covers you for past events that were not discovered during the initial title search.  

A typical owner’s title insurance policy will usually cover the following events or hazards:  

  • Ownership claims by a third party  

  • Incorrect signatures on documents, including forgery and fraud  

  • Restrictive covenants, such as unrecorded easements   

  • Encumbrances or judgments against the property, such as outstanding lawsuits or liens  

An ownership claim can arise because, for instance, a will was not probated and the property transferred anyway. That “owner” can resurface and make a claim to the property you purchased from someone else you thought was the owner.   

An easement challenge could arise from a fence that was built prior to your purchase that is on a neighbor’s property. A lien from a past unpaid debt might resurface, or a judgment in a lawsuit could also suddenly come to the fore. An unpaid home equity loan might be among the debts unexpectedly reappearing. 

Filing a Title Insurance Claim 

Insurance companies may have different requirements for filing a claim for a title defect threatening your right to ownership of the property you felt you legitimately purchased. Regardless of the reporting requirement, the title company is obligated to pay for your financial loss or the value of the claim against you and also cover all associated legal costs, up to the face value of the policy purchased.  

Note, however, that these policies contain numerous exclusions and exceptions, including an unrecorded title defect you already knew about, building and zoning violations, restrictive covenants limiting your use of the property, and more. Be sure to read the fine print. 

How an Insurance Claim Attorney Can Help 

Insurance companies are for-profit institutions, so filing a claim is not always going to be the slam dunk you expect it to be. Insurance representatives, often in the person of a claims adjuster, are trained to limit the parent company’s liability.   

To do so, they will try to get you to say or do something that can provide them with an excuse to lowball or even deny your claim. They may even try to use your policy’s exclusions and exceptions to question the validity of your claim.  

An attorney experienced in dealing with insurance companies and their tactics can handle all the insurer’s questions and objections and help speed the way to resolution. 

If you’re in the Chandler, Arizona area, or nearby in Phoenix, Tucson, or Flagstaff – or anywhere in Arizona – rely on Arnett & Arnett, PC. With our 30-plus years of dealing with insurance companies, we can help you exercise your rights and obtain the best possible outcome. Reach out immediately if a title dispute arises over your property and threatens your ownership.