Buying property in Washington state involves a process known as a title search that makes sure there are no problems such as liens, unpaid taxes, and prior claims to the land. However, a title search can overlook these issues, which is where title insurance comes in to protect the buyer. Title insurance provides the buyer with a defense against a claim or other issue, but the insurer may decide to not uphold their duties to the insured. That’s why it’s a good idea to get professional legal support from a Washington real estate lawyer who can protect your interests as a buyer and make sure you’re getting a piece of property with a clean title.
What is Title Insurance?
Title insurance is a type of insurance that protects both borrowers and lenders during the real estate transaction process. Properties of all types, especially older ones, typically go through multiple owners, alterations, and zoning changes throughout their history of recorded ownership. These changes are supposed to be recorded with the county or state to create a clear history of changes that are searchable and shows that the changes are settled and closed. Most of the time, the title search is done by a lawyer or title search company.
Title insurance comes into play when there was an oversight or a defect is found after the transaction for the property has closed. Many lenders require title insurance as part of the purchase contract, but not all do. Buyers who aren’t required to buy title insurance should get a title insurance policy to protect themselves against title defects that can arise months or years after they’ve bought their real estate.
The Importance of Title Insurance During a Real Estate Transaction
A clear title history to a property makes it easy for both parties to close on the transaction, as there are no encumbrances or other prior claims that can derail the process. However, there are no guarantees that a title is clear for transfer, and title insurance helps to protect against an unforeseen claim or other issues with the property after closing.
In the event someone comes forward with a claim against the property after closing, title insurance pays for the homeowner’s need to defend against the claims. Some of the reasons for a prior claim include mechanics liens, the heir of a former owner coming forward, a previous mortgage is still active, or a judgment of some kind that has been applied to the property. If any of these issues aren’t found during the title search process, they can complicate the current owner’s ability to hold onto the property and also incur financial losses.
Not buying title insurance opens up the buyer to pay the full financial burden of the defect. For example, a previous owner failed to pay property taxes, and the title search failed to uncover this issue. The current owner is held responsible for the unpaid property taxes, as unfair as that seems, and the problem won’t go away until the property taxes are paid. It’s up to the current owner to find the previous owner and figure out a way to get them to pay the property taxes. Title insurance makes this a non-issue for the current owner.
Understanding How the Title Insurance Process Works
Title insurance comes in two forms; lender’s title insurance and owner’s title insurance. A borrower buys a lender’s title insurance to protect the lender, and the owner’s title insurance is bought by the seller to protect the buyer. Lender’s title insurance is the most commonly purchased, but a seller can offer to buy the policy as an incentive to the buyer.
The title search process is needed to make sure the title to the property is clear or clean. A title that is not clear is known as a dirty title, hence the need to research public records regarding property. In some cases, a property has been owned by different people for well over a century, which means that records can become obscured or lost. For younger properties, the title can be dirtied by unpaid property taxes, liens from Medicaid, unpaid loans, improperly permitted construction, and other unresolved issues.
How Title Insurance Disputes Happen
Title insurance disputes come up when there’s an issue with the property or the insurer fails to act according to the policy. Some of the more common title insurance disputes that can happen in Washington state include:
- Land title disputes.
- Issues with the boundaries of the property.
- Dirty titles that were transferred without the issues being cleared beforehand.
- Disputes over the amount of insurance that was promised versus what was delivered.
- Lack of payment of benefits.
State laws also affect how a title dispute is handled. The Washington state courts have taken an approach of buyer beware and tend to side with the seller when it comes to undisclosed defects in a title. That means the seller is usually not held liable for any undisclosed defect or unresolved issue that affects the property, and it’s up to the buyer to have known about the defect before closing on the property. While this is not something that’s enshrined in state law, it is a position that can be difficult to overcome in court.
What all of this means for a buyer is the need to engage in due diligence before closing on the property. Due diligence consists of combing through property records, tax records, and the courts to determine if the title is clear or not. Normally, this is done by the person or people doing the title research, but they may not be as thorough as they should or overlook areas where they should be searching. Retaining a lawyer who has experience with title research as part of the real estate closing process can provide strong protection against a defective title and a failure of a title insurance company to perform.
How a Real Estate Lawyer Can Help with a Title Insurance Dispute
A real estate lawyer has a thorough understanding of the real estate laws in Washington state and knows where to look for potential issues with a title. They can also protect you against a title insurance company that is unwilling to perform. At Dickson Frohlic Phillips Burgess, our team of real estate attorneys is here to provide you with legal assistance and make sure your rights as a buyer are respected. We have offices in Seattle, Tacoma, and Olympia for convenient access to our attorneys. Call us at our Seattle office to discuss your needs for a smooth real estate transaction.