2009hotlegaltopics-titleinsurance-091019140558-phpapp02

7/27/2019 2009hotlegaltopics-titleinsurance-091019140558-phpapp02

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WHAT IS TITLE

INSURANCE?AND DO I NEED IT?


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A title is the evidence, of right,

that a person has to the

ownership and possession of

land. It is possible that someone

other than the owner has a legalright to the property. If that right

can be established, this person

can claim the property outright or

make demands on the owner asto its use.

WHAT IS A TITLE?


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A title policy insures the condition of yourtitle or ownership rights to a certain piece

of property

Before a policy of title insurance can be

issued in North Carolina, a title

examination must be conducted under thesupervision of an independent attorney

licensed to practice law in North Carolina

This requirement has directly led to North

Carolina having one of the very lowest

costs in this country, to the owner, for

assuring title.

WHAT IS A TITLE?


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The attorney carefully researches all

relevant recorded documents affectingownership of the property being

examined necessary to determine the

status of the title. The attorney will then

submit a title opinion to the company

Typically, the title company will then

issue a "binder" or "commitment" to the

lender and owner, which obligates the

company to insure the title as describedby the attorney, with certain limitations

and requirements

WHAT IS A TITLE?


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Even the most thorough search will not

reveal any "hidden defect" that is not

shown on the public records. Such a

defect may be a problem caused by an

inadequate survey, a clerical error,

confusion over names, forgery, fraud,unrecorded claims for improvements or

numerous other possible problems.

Careful attorneys can not reasonably be

expected to discover title problems that

are not revealed in the public records.

Therefore, the examining attorney is notresponsible to you for dealing with these

issues when they arise after closing.

WHAT IS A TITLE?


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Without title insurance, the

companies advertise that you are on

your own!

Although title insurance does notguarantee that title defects do not

exist or will never occur, it supposed

to insure you against possible losses

through certain claims against your

title as a result of conditions notrevealed on your policy.

WHAT IS A TITLE?


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Do I need Title Insurance?Most definitely! Title insurance is a means of

protecting yourself from financial loss in the

event that problems develop regarding the

rights to ownership of your property. There maybe hidden title defects that even the most

careful title search will not reveal. In addition to

protection from financial loss, title insurance

pays the cost of defending against anycovered claim.

ACTUAL VERBAGE SEEN ON THE WEBSITES

OF SOME NC TITLE COMPANIES


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ACTUAL VERBAGE SEEN ON THE WEBSITES

OF SOME NC TITLE COMPANIES

What can make a Title Defective?Any number of problems that remain undisclosed

after even the most meticulous search of public

records can make a title defective. These hidden

"defects" are dangerous indeed because youmay not learn of them for many months or years.

Yet they could force you to spend substantial

sums on a legal defense, and still result in the

loss of your property.


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So what happens if you are a successorin interest and you receive a Claim ofLien via certified mail just after you

closed on your house?

What can you expect if youre thesupplier or subcontractor filing a Claim of

Lien against an otherwise innocenthome-purchaser?


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SCENARIO 1

Supplier S has an open accountwith Builder B.

Builder B has built a spec housewith Ss materials.

B enters into an Offer to Purchase

Agreement with first time homepurchasers, Mr. & Mrs. Nave.

Naves obtain a loan for 80% anduse up all of their savings for theremaining 20% necessary to

purchase the property. Lender requires the purchasers to

obtain title insurance.


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SCENARIO 1

At closing B fails to discloseS, or commits fraud byclaiming S has been paidin full.

Closing Attorney charges

the Naves and purchases atitle policy, effective the dateof closing.

30 days after the closing Sfiles an inchoate claim of

lien on the property. Is the claim of S recoverable

from the title policy?


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IN THE PAST.

1. Taxes and special assessments that become due and

payable subsequent to the date of policy;

2. Covenants or restrictions appearing in the PublicRecords (however if damages or loss resulted prior to

the date of the policy they would be covered);

3. Easements or servitudes appearing in the Public

Records; and

4. Any lease, grant or reservations of minerals or mineral

rights appearing in the Public Records.

A policys exceptions and limitations wouldinclude the following:


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A NEW TREND.

ADDENDUM TO SHORT FORM RESIDENTIALLOAN POLICY SCHEDULE B

In addition to the matters set forth on Schedule B of the

policy to which this addendum is attached, this policy doesnot insure against the loss or damage (and the companywill not pay costs, attorneys fees or expenses) that ariseby reason of the following:

1. Any lien, or right to a lien for services, labor, material

or rental equipment heretofore or hereafter furnished,

imposed by law and not shown on the public records.


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AND THE DENIAL LOOKS SOMETHING LIKE THIS


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SO WHERE DOES THE DENIAL LEAVE THE SUPPLIER?

You are left with the remedy of proving the

validity of the lien claim, suing the

homeowner and foreclosing on the successor

in interests interest in the property.

Assuming the inchoate lien is valid and pre-

dates the interest of the Lender, the supplier

should get paid out first.


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SO WHERE DOES THE DENIAL LEAVE THE SUPPLIER?

The homeowner faces foreclosure with norecourse against anybody but the builder.

They are most likely in default in the terms of

their mortgage. Perhaps they also have a

claim against the closing attorney fornegligence, if they can show that they paid for

a product that is inferior to others in the

market. If all title companies exclude this

coverage, then the attorney has notcommitted a negligent act.


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WHAT CAN I DO?

Be diligent know yourbuilders and stay on topof accounts

File liens early thesenew contractualchanges only apply toinchoate liens not on

the public record


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WHAT CAN I DO?

Educate people you know are inthe industry once peoplerealize theyre buying an inferiorproduct they may shop aroundand use another title companythat is willing to properly insurepurchasers and lenders

Contact your legislatures andtrade groups policy costs are

legislated why are policycontents and coverages notlegislated as well?


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LEGISLATIVE DEVELOPMENTS

Senate Bill 803 www.ncleg.net

Sponsored by SenatorTony Rand, 19th District

Bladen & CumberlandCounties

(910) 222-8096

Whose behind thelegislation?

Guess???
http://www.ncleg.net/http://www.ncleg.net/


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PURPOSE OF SB 803

According to the proposed Bill

To address hidden liens to protect third-

party purchasers for value and lenders in

real estate transactions

What this really means

To limit the title insurance companies

exposure to (hidden) lien claims


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WHAT IS A HIDDEN LIEN

Owner hires Contractor to perform work

Begins work on January 15

Concludes work on January 30

Owner sells property February 15

Contractor, having never received payment from

Owner, files lien on February 18

Contractors lien is valid from (relates back to)January 15, his first date of worknow what?


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In other words

Contractor filed a lien on a property for work

performed prior to sale, but after the property was

sold.

The lien is valid, but the person with whom

Contractor contracted no longer owns property.

The lien attaches to the property, in the hands of

the new owners who had no idea they wereexposed to a lien ahidden lien


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So, who is responsible for the lien?

The property, in the hands of the newpurchaser, is subject to the lienso the

new purchaser


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Butthats why the new purchaser hasTITLE INSURANCE!

To insure that the new purchaser isprotected from defects or claims against thetitle of the property, like liens

New purchaser would tender the lien to the

Title Insurance Company to pay or defend.


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LEGISLATIVE DEVELOPMENT REVISITED

What does the proposed legislation do?

A claim of lien shall not be effective against real

property owned by purchaserswhose interest

has been registered in the office of the register of

deeds of the countyin which the property is

located after the date of first furnishing of labor or

materialsbut prior in time to the filing of the

claim of lien.


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LEGISLATIVE DEVELOPMENT REVISITED

In other words

If the owner sells the propertybefore the lien is filed, then youloose your lien!

Even if you are within youstatutory period of time (120

days) to file the lien!


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EXAMPLE REVISITED (UNDER PROPOSED LEGISLATION)

Owner hires contractor to perform work Begins work on January 15

Concludes work on January 30

Owner sells property February 15

Contractor, having never received payment fromOwner, files lien on February 18

Contractors lien is valid from (relates back to)January 15, his first date of work

But, under the new legislation, Contractor lost hislien rights on February 15!


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EXAMPLE REVISITED (UNDER PROPOSED LEGISLATION)

What does this mean for Title Insurance

Companies and Contractors? Title Insurance Companies no longer have to pay or defend

against hidden liens.

Contractors loose their lien rights if the property is soldbefore lien is filed.

No longer will the lien attach to the property in the hands of thenew purchaser

Direct attack by Title Insurance Companies against the lienrights of Contractors

If Contractor doesnt file his lien prior to the sale of the property,

then Contractor is out of luck. Title Insurance Company notpaying!

Commentary

Title Insurers are legislating themselves our of work!


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WHAT CAN IDO?

Be diligent

Keep project info (owner,

dates, location)


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WHAT CAN IDO?

File liens early

If this legislation ispassed, then waiting tofile liens could actuallykill your lien rights


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WHAT CAN IDO?

Contact your localRepresentatives andoppose the legislation

Get involved in tradeassociations and vocalizeopposition to SB 803;Protect your lien rights!


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THANK YOU!THANK YOU!

1720 Hillsborough Street, Suite 200 | Raleigh, NC 27605

Tel: 919-510-8585 | Fax: 919-510-8570

1200 East Morehead Street Suite 251 Charlotte, NC 28204

Phone: 704-496-7495 Facsimile: 704-496-7480

www.vannattorneys.com

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