[WSBARP] Title Insurance to Insure Inheritance

[Roger Hawkes]

Thanks, again, Dwight.  Sage advice and commentary.

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Dwight Bickel
Sent: Thursday, January 26, 2023 2:33 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: [WSBARP] Title Insurance to Insure Inheritance

The question posed by a lawyer representing heirs is an excellent opportunity to discuss the advice that should be discussed with the heirs, for them to make the decision whether to invest in title insurance policy insuring the land to be inherited.

In most cases, the heirs have fairly high confidence in the ownership rights of the decedent in the property. Often the decedent(s) owned the property for many years, maybe even paid-off the mortgage, and it was owner-occupied residential. Similarly, the heirs may be confident about the potential for rights of others in the property that may have been given by deeds, leases, easements, involuntary liens, etc. Perhaps then there is not much value obtained from a new title insurance policy.

With modern title insurance forms, the heirs remain insured and protected by the prior title insurance policy issued to the decedent. Of course that policy will not insure the validity of the transfer to the heir, or their rights as an heir or a devisee. If there are questions about that probate, or the rights of the transfer, a new title policy would be required. The prior policy dollar amount may not be a realistic present value of the land. A policy issued twenty years ago will be a low dollar amount, and a lot of time has passed where changes to the property may have occurred.

However, in one case I witnessed an heir who inherited undeveloped commercial property. He borrowed a couple million and constructed a building, then leased that space to tenants. A subsequent claim against the land appeared valid and posed a likely full loss of title. The title company paid to protect the lender, but had a recovery right against the borrower, the uninsured owner. The prior owner did not have title insurance either, so the heir had no protection. As those here should know, the title company’s policy to the lender provided no protection to the heir.

This illustrates that an heir may have no reasonable confidence in the ownership rights of the decedent, and should absolutely get a new policy to discover the apparent title and to protect against unknown rights.

If the heirs do seek title insurance to protect their expectations of the quality of title, and to protect against their liability to others, such as a lessee, a lender or a purchaser, they should require the title company to alter the effect of the "bona fide purchaser" exclusion from coverage. In essence, since an heir does not pay for the acquisition, the effect of this exclusion is that they have no coverage for loss if suffered due to the application of laws that protect a purchaser from unrecorded rights.

EXCLUSIONS FROM COVERAGE

The following matters are expressly excluded from the coverage of this policy, and the Company will not pay loss or damage, costs, attorneys' fees, or expenses that arise by reason of:

3. Defects, liens, encumbrances, adverse claims, or other matters
...
(e) resulting in loss or damage that would not have been sustained if the Insured Claimant had paid value for the Title.

Depending upon the facts of the decedent and the land, it is reasonable to expect a title company to agree to that endorsement for little or no premium. Then the heir has the same rights to protection as a purchaser would receive at a sale.

Dwight A. Bickel
Real Property Title Advisor
Washington Title Professional
Dwight at DwightBickel.com<mailto:Dwight at DwightBickel.com>
https:/dwightbickel.com
206-484-1976
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