You’ve just sold a house. That, is you thought you’d just sold a house – but the title company has just discovered that the there may be a forgery in the chain of title. The signature of a previous seller looks vastly different from his signature on the purchase documents. Since the previous sellers were going through a divorce when the property was sold to the current owner, the title company wants to check the validity of the previous owner’s signature.

A recent study by the American Land Title Association showed that 25 percent of all residential property transactions require “curative action” prior to closing. Forgery is one of the more common problems that a title company may encounter when researching a residential property. Other common title problems include fraud, missing legal documents such as divorce decrees and wills, and undisclosed heirs.

The good news is that a reputable title company’s staff can help you resolve these issues on your buyer’s behalf in most cases. If discovered before closing, the problem may even be resolved behind the scenes without the buyer even being aware of the problem.

Of course a title company’s thorough search of the public records and other documents affecting the title to a particular property before closing may not uncover every possible title problem. That’s why owner’s title insurance policies are important – to protect purchasers from claims that may arise after closing. The owner’s policy indemnifies the purchasers against matters covered in the policy such as fraud and forgery and provides a legal defense, if necessary, on behalf of the purchaser.

Forgers and con artists can be very devious and fraud can involve complicated schemes that are tricky to unravel. For instance, an individual may create a fictitious identity or company, record a fictitious deed, notarized by a fictitious notary, and record it at a local courthouse to create the appearance of owning a definitely not-fictitious property – which the individual can then sell to an innocent buyer. This fraud may be discovered during the title search before closing, if the title company observes a discrepancy in the public records. Or, it may not be discovered until the true owners discover that their property was sold without their consent and seek compensation or the title from the innocent buyer.

Missing wills, conflicting wills and undisclosed heirs can also cause problems. For instance, a probate court may rule that a certain property be given to a particular family member, who then sells the property. Years later, another family member may appear with proof that the deceased person intended for them to have the property and therefore this second family member deserves the property or just compensation. Or a family member may emerge and claim an inheritance based on a newly discovered will that differs considerably from the will previously found.

If there is no will, there is also the possibility that a previously undisclosed heir will emerge with a claim. While in most cases the new heir is completely valid, there are instances in which the “long-lost half-brother” is actually a con artist.

The good news is that, whether the problem is forgery, fraud, missing wills or missing heirs, when your client, the buyer, has purchased an owner’s title policy, the title company will come forward when a claim is made to provide a defense of the title or compensate the buyer in accordance with the terms and conditions of the owner title policy.

Published: September 16, 2002

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Ginny Abiassi is Senior Vice President, Director of Communications, and Senior Underwriting Counsel for Stewart Title Guaranty Company, a subsidiary of Stewart Information Services Corp. (NYSE: STC). She heads Stewart’s national marketing program, oversees six company websites and is a frequent lecturer on real estate, real estate law and title insurance topics. She is the co-developer of Stewart's award-winning Virtual Underwriter software, as well as the creator of REprofile.com, the website that profiles the latest news, legislation and court decisions in the areas of real estate, finance and title insurance. Stewart Information Services Corp. is a global real estate information company, providing title insurance and related information services through more than 5,900 issuing locations in the United States and several international markets. Stewart meets the needs of real estate agents and mortgage lenders through the delivery of information services required for settlement using e-commerce. For more information visit www.stewart.com or contact solutions@stewart.com.