Does Title Insurance Cover Title Theft?
Title insurance is a type of insurance that protects homebuyers and mortgage lenders from financial losses resulting from title defects, including fraudulent activities such as title theft. But does title insurance actually cover title theft?
What is Title Theft?
Before we dive into the coverage, it’s essential to understand what title theft is. Title theft, also known as identity theft or mortgage fraud, occurs when a fraudulent transfer of property is made, resulting in a third party claiming ownership of a property. This can happen when an individual steals a homeowner’s identity and uses it to secure a mortgage, purchase, or refinance a property.
Types of Title Theft
There are several types of title theft, including:
- Identity theft: Stealing a homeowner’s identity and using it to secure a mortgage or other loan.
- Fraudulent transfers: Transferring ownership of a property without the homeowner’s knowledge or consent.
- Title washing: Hiding ownership of a property to avoid paying taxes or other obligations.
Does Title Insurance Cover Title Theft?
The Short Answer:
Title insurance policies do cover title theft, but the extent of the coverage depends on the type of policy and the state where the property is located. Most title insurance policies include coverage for fraudulent activities, including title theft.
The Long Answer:
Standard Title Insurance Policy:
The standard title insurance policy, known as an Owner’s Policy, provides coverage for a variety of title defects, including:
- Liens and encumbrances: Encumbrances on the property that affect its ownership or use.
- Covenant restrictions: Restrictions on the use of the property, such as zoning ordinances or easements.
- Disputes: Disputes over the ownership or boundaries of the property.
The policy also covers fraudulent activities, including title theft. This means that if a title thief steals your identity and uses it to secure a mortgage or purchase a property, the title insurance policy will protect you from financial losses.
Expanded Coverage:
Some title insurance policies offer expanded coverage, known as Title Commitment Coverage or Extended Coverage. This type of coverage provides additional protection against specific risks, such as:
- Condominium or community association issues
- Environmental hazards
- Boundary disputes
- Mortgage or lien issues
Expanded coverage may also include Mortgage Fraud Coverage, which specifically addresses title theft and other fraudulent activities related to mortgages.
State-Specific Coverage:
Title insurance policies are governed by state law, and the extent of coverage for title theft can vary from state to state. Some states have more stringent laws and regulations related to title theft, which can impact the level of coverage provided by title insurance policies.
What is Not Covered:
Title insurance policies do not cover:
- Disputes over the existence or validity of the policy
- Claims based on incorrect information or failure to disclose information
- Claims related to acts of God or war
- Claims related to property damage or destruction
Conclusion:
In conclusion, title insurance does cover title theft, but the extent of the coverage depends on the type of policy and the state where the property is located. Standard title insurance policies provide coverage for fraudulent activities, including title theft, while expanded coverage options may offer additional protection against specific risks.
Table: Coverage for Title Theft
| Policy Type | Coverage for Title Theft |
|---|---|
| Standard Owner’s Policy | Yes, standard coverage |
| Title Commitment Coverage | Yes, extended coverage |
| Mortgage Fraud Coverage | Yes, specific coverage for mortgage fraud |
| State-Specific Coverage | Varies by state |
Additional Tips:
- Always research and understand the title insurance policy before purchasing a property.
- Review the policy’s terms and conditions, including the coverage for title theft.
- Consider purchasing expanded coverage options for added protection.
- Stay informed about title theft and fraudulent activities in your area.
By understanding the coverage provided by title insurance policies, homebuyers and mortgage lenders can better protect themselves against the risks associated with title theft.
