Title Insurance Claims: What's Covered and How to File

Excerpt: Title insurance claims are rare but important to understand. Learn what's covered, how to file a claim, and what to expect from the process.

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The Ultimate Guide to Understanding and Filing Title Insurance Claims

Buying property in the dynamic DMV market—whether it’s a historic row house in Washington D.C., a sprawling suburban home in Northern Virginia, or a waterfront retreat in Maryland—is one of the largest financial investments you will ever make. While the process involves countless checks and balances, hidden risks related to the property’s ownership history can sometimes surface years after closing.

This is where title insurance steps in. Unlike standard property insurance, which protects against future events (like fire or theft), title insurance protects against defects that occurred in the past. While the vast majority of real estate transactions close without issue, understanding how to handle potential title insurance claims is crucial for every homeowner and lender.

At Pruitt Title, a woman-owned company deeply rooted in the D.C., Maryland, and Virginia real estate landscape, we believe in empowering our clients with knowledge. This comprehensive guide will walk you through what title insurance covers, the common reasons for filing a claim, and the step-by-step process of filing a successful claim.

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What is Title Insurance, and Why Does it Matter?

Title insurance is a protective measure against financial loss due to defects in the title to a property. Before closing, a thorough title search is conducted to uncover issues like outstanding liens, boundary disputes, or errors in public records.

However, even the most meticulous search cannot guarantee that every potential defect is found. Issues such as forgery, undisclosed heirs, or mistakes in previous deeds may only surface years later.

There are two primary types of title insurance policies:

1. Owner’s Policy

The Owner’s Policy protects the homeowner (the insured) for as long as they or their heirs own the property. This policy covers the homeowner’s equity up to the policy amount (usually the purchase price). This is the policy that protects you directly if you need to file title insurance claims.

2. Lender’s Policy (Loan Policy)

The Lender’s Policy is required by the mortgage company and protects the lender’s investment in the property. It ensures that the lender has a valid, enforceable lien on the property.

In the DMV region, where property values are consistently high, having robust title protection is non-negotiable.

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What is Covered by Title Insurance? Common Reasons for Title Insurance Claims

Understanding the scope of coverage is the first step in preparing for potential title insurance claims. While policies can vary slightly, standard owner’s policies generally cover defects that existed prior to the policy date but were unknown at the time of closing.

Here are the most common issues that lead to title insurance claims:

A. Defects in Public Records

• Errors in Deeds or Surveys: Simple clerical errors, misspellings, or incorrect legal descriptions in previous property documents.
• Improper Execution of Documents: Documents signed by minors, individuals judged incompetent, or those signed without proper legal authority.

B. Hidden Title Defects

These are issues that are impossible to find during a standard title search:

• Forgery and Fraud: A fraudulent deed or mortgage used to transfer ownership illegally.
• Undisclosed or Missing Heirs: A previous owner died without a will, and an unknown heir later surfaces to claim ownership.
• Marital Status Issues: A previous owner was married, but the spouse did not properly relinquish their interest in the property during the sale.

C. Financial Encumbrances

These are financial claims against the property that were not properly cleared at closing:

• Unpaid Mortgages or Liens: A previous owner failed to pay off an old mortgage, tax lien, or mechanic’s lien (e.g., unpaid contractor bills).
• Judgment Liens: Claims against the previous owner resulting from court judgments that attach to the property.

D. Access and Boundary Issues

• Lack of Legal Access: The property does not have a legal right of access to a public road.
• Boundary Encroachments: A neighbor’s structure (like a fence or shed) is found to be encroaching significantly onto your property, or vice versa, leading to a dispute.

Statistics on Title Defects

While title defects are rare, they are costly when they occur. According to data compiled by the American Land Title Association (ALTA), approximately 25% of all real estate transactions encounter some form of title issue that must be resolved before closing. While most are resolved pre-closing, the issues that slip through are the ones that necessitate filing title insurance claims.

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What is NOT Covered by Title Insurance?

It is equally important to know the limitations of your policy. Title insurance is not a substitute for homeowner’s insurance or a home warranty.

Standard title insurance policies generally do not cover:

1. Defects Created After the Policy Date: Issues arising after you take ownership, such as new liens for unpaid property taxes or new boundary disputes caused by your own actions.
2. Environmental Hazards: Issues like mold, asbestos, or radon.
3. Physical Damage: Damage from fire, storms, or theft (covered by homeowner’s insurance).
4. Zoning and Land Use Changes: Government restrictions on how you can use the property (unless specifically endorsed).
5. Defects Known to You: If you knew about a title defect before purchasing the policy and failed to disclose it.

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The Claims Process: How to File Title Insurance Claims

If a title defect surfaces—perhaps you receive a letter from an attorney claiming an interest in your property, or a contractor files a lien for work done before you owned the home—you need to act quickly.

The process for filing title insurance claims is straightforward, but adherence to the policy’s requirements is essential.

Step 1: Immediate Notification

The moment you become aware of a potential defect or claim, you must notify your title insurance underwriter immediately. Delaying notification can sometimes jeopardize your coverage.

• Identify Your Underwriter: Look at the first page of your Owner’s Policy. Pruitt Title often works with reputable national underwriters, such as First American Title Insurance Company, to ensure robust protection for our DMV clients. The policy document will list the underwriter and their contact information.
• Contact Pruitt Title: While you must notify the underwriter, you should also contact the team at Pruitt Title. We can help guide you through the initial steps and ensure you have all the necessary documentation from your closing.

Step 2: Formal Written Notice

Your notification must be in writing. The letter or email should include:

1. Policy Number: Found on the policy jacket.
2. Property Address: The exact location of the property.
3. Description of the Claim: Detail the nature of the defect (e.g., "Received notice of a $15,000 mechanic’s lien filed by ABC Contractor for work completed in 2018").
4. Supporting Documentation: Include copies of any letters, court filings, or documents you received related to the claim.

Step 3: Underwriter Investigation and Response

Once the underwriter receives your formal notice, they will initiate an investigation. A claims representative will review your policy and the alleged defect.

The underwriter has two primary obligations under the policy:

1. Defend the Title: If the claim involves a lawsuit or legal challenge, the underwriter will hire and pay for legal counsel to defend your title in court. This is a critical benefit, as litigation costs can be astronomical, especially in high-cost areas like Northern Virginia and D.C.
2. Cure the Defect or Pay the Loss: If the defect is valid, the underwriter will attempt to "cure" the defect (e.g., pay off the outstanding lien). If the defect cannot be cured and results in a loss of property value or forces you to sell, the underwriter will compensate you up to the policy limit.

Actionable Advice from Pruitt Title’s Expert, Will Rapuano

Will Rapuano, a key member of the Pruitt Title team, emphasizes the importance of documentation: "When filing title insurance claims, the devil is in the details. Keep every piece of correspondence related to the alleged defect. If you are served with legal papers, do not ignore them. Forward them immediately to your underwriter. Prompt action ensures the underwriter can mount the strongest possible defense of your ownership rights."

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What to Expect After Filing a Claim

The timeline for resolving title insurance claims varies widely depending on the complexity of the issue.

Legal Defense

If the claim results in litigation, the underwriter takes charge of the defense. They select the attorney, cover all legal fees, and manage the strategy. You are generally required to cooperate fully, providing testimony or documents as needed.

Settlement

In some cases, the underwriter may choose to settle the claim rather than litigate, especially if the cost of litigation exceeds the cost of resolving the defect.

For example, if a prior owner’s $5,000 tax lien surfaces on your Maryland property, the underwriter will simply pay the taxing authority the $5,000 plus penalties to clear the title, thus resolving the title insurance claims swiftly and protecting your investment.

Policy Limits

Remember that the policy limit for an Owner's Policy is typically the purchase price of the home. While the cost of legal defense is usually covered in addition to the policy limit, the maximum amount the insurer will pay to resolve the defect or compensate you for loss of property is capped by the policy amount.

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Establishing Authority in the DMV Market

In the highly competitive and often complex real estate environment of Washington D.C., Maryland, and Virginia, choosing the right title partner is paramount. Pruitt Title is committed to providing meticulous title searches and reliable policy coverage.

Our deep understanding of local laws, unique municipal requirements (especially in D.C. and specific Virginia counties), and the common title pitfalls in historic properties allows us to minimize the chances of future title insurance claims.

We partner exclusively with financially strong and highly rated underwriters, such as First American Title Insurance Company, ensuring that if a claim does arise, our clients have the full backing of a national powerhouse dedicated to protecting their property rights.

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Summary and Final Recommendations

While the process of filing title insurance claims may seem daunting, it is the fundamental mechanism that protects your most valuable asset.

Key Takeaways:

• Owner’s Policy is Your Shield: It protects your equity against past defects.
• Act Fast: Notify your underwriter immediately upon discovery of a defect.
• Document Everything: Keep copies of all correspondence and legal documents.
• Cooperate Fully: Work closely with the claims representative and the legal counsel provided by the underwriter.

Pruitt Title is here not just to close your transaction, but to ensure your peace of mind long after the closing table. We pride ourselves on being a trusted resource for homeowners and lenders across the DMV region.

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Protect Your Investment with Pruitt Title

Do you have questions about your existing title policy, or are you preparing to purchase a home in D.C., Maryland, or Virginia? Don't wait until a problem arises to understand your coverage.

Pruitt Title offers expert guidance and reliable title insurance services tailored specifically for the complexities of the DMV real estate market.

Contact Pruitt Title today for a consultation and let us secure your future ownership.