Q: We represented a Buyer many years ago. Several years after escrow closed, he married and then put the property into a family trust. He recently got into a dispute with his neighbor regarding easement rights that he thought he had acquired when he bought the property and which were covered under his title insurance policy. The Title Company is denying coverage because the insurance policy terminated when the Buyer transferred the home into the family trust. How is that possible? Does transferring title always terminate the title insurance coverage?
A: Yes, it is possible that the title insurance policy coverage terminated when title was transferred to a trust depending upon the terms and conditions of the Title Policy. Title policies issued more than twenty years ago routinely specified that the policy only protected the actual named insured and did not protect anyone else except anyone “who receives your title because of your death.” (Quoted from a 1996 Stewart Title ALTA Residential Title Insurance Policy).
Title Insurance Policies issued after 2000 are more likely to allow for coverage to continue even if the property is transferred to a family trust BUT there are no guarantees that such coverage actually exists in any given situation.
Before anyone transfers title from their individual name to any type of trust or other entity (and/or to add new people to title), they should first review their Title Insurance Policy with their own Qualified California real estate attorney and/or the Title Company that issued the policy to determine any and all potential coverage issues.
PRACTICE TIPS
- Real estate licensees should never give legal, tax or insurance advice. Clients who have questions about these topics should be advised to consult with the appropriate professionals.
- Buyers who indicate that they intend to change how title is held after escrow closes should be encouraged (preferably in writing, such as an email) to review their title insurance coverage with their own qualified California real estate attorney and/or the Title Company that issued the Title Policy before changing how title is held to the Property.
- Buyers should be encouraged to retain a copy of their Title Insurance Policy even after they have sold the property in case there is any question about the status of title issues that were transferred at the time of sale.
This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
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