Title Insurance - Style Two

It has been said in various ways that insurance is “the only product that both the seller and buyer hope is never actually used.” This comment usually refers to homeowners’ insurance – which, incidentally, many in Northfield have recently used to replace their roofs and siding following the tornadoes of September 2018 – but this also applies to title insurance. Title insurance, which protects your ownership of your home if someone else makes a claim or pays to fix problems caused by, for example, an error in recording the payment of a mortgage, is seldom given much consideration.  Most people can’t even think of a clear example of when it would be needed.
As a professional, though, I’ve seen situations where it could certainly come in handy.  In fact, I came across one in a recent transaction. The home had been in the family for nearly 100 years, changing hands through inheritance. During this time, several mortgages had been taken out, paid off, taken out again, refinanced, etc. Since the property had never been sold in all this time, the seller had no reason to think there may be even a hint of a title issue. Surely the mortgage companies would have checked things out along the way, right?
Wrong. Now that the time had come to sell the home to someone outside the family in an arm’s-length transaction, complete title searches were done to come up with a title commitment – essentially the title company saying that they stand behind their statement that there are no problems with the seller giving “marketable title” to the buyer. In this

case, the search came up with unexpected results: the title company was requiring a record of a power of attorney for a mortgage servicing company to sign on behalf of Freddie Mac. If this sounds a bit complicated, it’s because it was, but the upshot is that two decades ago, someone signed a mortgage form when someone else should have signed it. It turns out that in the late 1990's a mortgage had been paid off, but the company that signed the notice of satisfaction (the legal term for saying the loan is paid in full) wasn't the company that held the mortgage, creating a gap that we call a “Cloud on Title” and preventing the sale of the home in 2019.
When confronted with this problem, the seller pulled out old dusty folders from storage and rummaged through them looking for evidence that the mortgage had actually been paid off.

They found a settlement statement (a form that summarizes all the fees for closing a mortgage) from the mortgage refinance and a payoff statement showing that the mortgage in question was paid off. One of the fees on the statement was for title insurance, but it only protected the mortgage company, which was no help to the homeowner. (Incidentally, the fact that it’s common for mortgage companies to have title insurance to protect their interest is perhaps a good hint to the rest of us that we’d do well to have it also.)  In the end, the homeowners had nothing showing that the person who signed the form had authority to do so. The financial climate of the 90's in America was full of sales and resales of mortgages from one company to another, with servicers changing way too often, and this resulted in confusion over who had the authority to confirm that mortgages were in fact paid off. Someone in an office somewhere more than 20 years ago had made a mistake that had nothing to do with the homeowner, a mistake that occurred in a way that they never could have been expected to know about.  Yet this year they discovered that, through no fault of their own, they didn’t have the right