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Insurance Untangles Ownership
When lenders write mortgages, they require that the borrower buy title insurance that covers the lender. The borrower can buy a separate owner's title insurance to cover his own risks.
Title insurance is issued after a search of public documents -- including old land records, tax liens and court judgments -- shows the property is owned free and clear. An owner's policy is designed to protect the buyer's interest in the property against a range of challenges. In cases of total or partial failure of title, if coverage applies, the buyer is made whole financially and the insurer pays any attorney's fees and court costs.
Title claims occur from situations ranging from the pedestrian to the scandalous.
One day last spring, D.C. title agent Jim Duley of Monarch Title at Eastern Market was examining the survey for a rowhouse the day before closing. On it, he noticed a new garage-door opener at the rear, even though from the survey the property appeared to be "landlocked," and provided no vehicular access.
Further investigation showed that behind the roll-up garage door was a five-foot deep parcel of land last owned by one Benjamin Carpenter, who had subdivided this land back in 1887. Taxes had been unpaid for years and no heirs had been found. The lot was indistinguishable from the public alley, both of which had been recently rebricked by the District.
The concern: Someone could buy the tiny lot in a D.C. tax sale and hold the owner hostage by demanding an exorbitant price for alleyway access to the property, as sometimes happens in the District, Duley said.
The would-be buyers got cold feet and withdrew their bid, Duley said. The house was put back on the market in September with a disclosure noting the sellers' intentions of obtaining a tax deed to the lot for the future buyer .
With the escalation of D.C. real estate prices in recent years, parking spots have a premium value. It is not unheard of for opportunists to take advantage of unclaimed alley and backyard-access parcels in older parts of the District, Duley said.
A bloodier battle concerned a murder case in Great Falls. Edward Y. Chen pleaded guilty to three counts of first-degree murder in 2002 after murdering his parents and brother seven years earlier. But in the years before he was arrested, he had assumed his brother's identity and sold five Northern Virginia houses. The complex title situation, where five families filed suits to clear the titles to their homes, resulted in a settlement that cost the title insurers more than $1 million.
According to the American Land Title Association, the first title insurance company was formed in 1876 by a group of Philadelphia "conveyancers," who searched land histories and issued opinions on title to ensure financial protection against the same challenges that arise today, including forgeries, hidden liens and encumbrances.
The title association estimates that 25 percent of title searches yield problems that title companies need to fix, usually unbeknown to the consumer or lender.
Title problems can lurk for years. First American usually does a 60-year search before issuing a new title policy. Land records are on file at area courthouses back to the 1700s. There is one 1799 deed at Montgomery County's Land Records Division denoting a property's legal description with the term "Wheel of Fortune."