In this ever-changing real estate market, industry professionals face unique challenges, uncertainties, and opportunities. As Chicagoland and the Upper Midwest continue to hold their allure for investors and homebuyers, incidences of title theft, real estate fraud, and wire scams are increasing.
Being aware of these potential pitfalls and safeguarding your clients’ interests is of paramount importance. One crucial aspect of protecting their investments is title insurance, which provides a safety net against potential risks arising from title defects, claims, or scams.
If a problem arises, you should be able to assist your clients with navigating the process of filing the title insurance claim. As it’s not a frequent occurrence for most real estate professionals, let’s explore the factors involved in handling title insurance claims and share valuable insights to help you protect your clients’ best interests.
Title Insurance 101
Most first-time homebuyers or budding real estate investors don’t realize the significance of title insurance and why it’s such a wise investment.
Simply put, a real estate title represents a package of rights to own and use the property. During the closing process, a comprehensive title search is performed by a trusted third party who takes an in-depth look at public records and other documentation to ensure there is no cloud on title or other encumbrances.
An encumbrance is any claim, lien, or restriction on a property that could affect the transfer of ownership or create a financial loss, such as unpaid taxes, secondary mortgages, boundary disputes, legal judgments, or delinquent contractor bills. The indemnity policy provided by title insurance protects the insured parties from financial losses and legal disputes related to these issues.
These claims might also include unresolved ownership disputes due to unknown heirs. If someone dies intestate, the probate court administrator follows state law to identify a legally eligible inheritor, but occasionally another heir with a legitimate claim can come forward, although, with today’s technology, this is relatively rare.
In the face of constantly evolving cybercrime, vigilance is necessary to detect title theft, fraud, and scams, especially in commercial real estate transactions where con artists are becoming increasingly sophisticated.
Identifying Trouble and Protecting Your Clients
When a person, lender, or other entity files a claim or a quiet title action against a property, the owner is typically notified in writing. Since claims are against a piece of real estate and not the owner personally, they can be easy to miss if mail is often delivered in the name of a former titleholder.
It’s vital to educate your clients about the signs of a title claim or attempted fraud and the necessity of remaining vigilant. Title theft can often go hand in hand with identity theft and other internet-enabled crimes, with seniors and those who own multiple or vacant properties being particularly vulnerable.
Here are some common signs that trouble may be brewing:
- Receiving bills for unknown accounts
- Unrecognized activity on a credit report
- Unpaid tax notices from the municipality or IRS
- Bills and other important mail stop arriving
- Foreclosure notices
- Letters regarding unknown mortgages or home equity lines of credit (HELOCs)
- Business email compromise (BEC)
If your client needs to defend against an action on their property or file a title insurance claim, the first step is to contact the policy issuer or your title insurance partner. Many policies have specific timeframes within which claims must be reported, so be sure to act swiftly to avoid any potential coverage issues.
Proper documentation is key. Advise your clients to gather all relevant information related to the title issue, including the insurance policy, closing documents, loan paperwork, and any other communications or evidence the title company needs to assess the claim.
Most brokers have a trusted real estate attorney on their team, and you should definitely advise your client to seek their professional advice, especially if a claim can’t be negotiated to a settlement and heads to court instead. An experienced advocate can provide valuable guidance and help protect your client’s interests, and the title insurance policy may cover attorney fees.
It’s essential to maintain open and transparent communications between your client and the title company, who will conduct their investigation to determine the validity of the claim and the appropriate course of action. Staying proactive and responsive during this stage ensures a timely resolution.
Best Practices
The commercial and residential real estate markets of Chicagoland and the Upper Midwest remain competitive and volatile, making them even more attractive for both potential buyers and online criminals.
For savvy brokers, it’s imperative to become the go-to resource for your clients and provide them with the expert advice they need to successfully navigate the real estate landscape and the title claim process.
Educating your buyers on the importance of title insurance goes a long way toward minimizing the potential impact of claims or other problems that might arise after closing and protecting your clients from harm. Having the right title insurance partner is fundamental to finding success — contact us to learn more today!