A question we hear often from real estate buyers is: “Do I need to purchase an owners’ title insurance policy?” The buyer will tell us that a title search has been done and the title looks fine.
The following case is an example of why we recommend that every buyer (and lender) should purchase title insurance.
In the context of a quiet title action, the Georgia Supreme Court held that forged deeds, without exception, can’t pass title. Aurora Loan Servs. LLC v. Veatch, S10A1725 (4/1/11).
The case involved property owned by a woman who died in 1974. The property passed to her son, her sole heir. The son died in March 2006. In October 2006, a quitclaim deed transferring the property to a third party was recorded on the public record. The problem is that the deed, dated May 2006, was executed by the woman who died in 1974. In November 2006, an executor’s deed related to the property was recorded. The problem with this deed is that it was executed by the heir in March 2006, a date on which the heir lay in a coma. Although not apparent from the face of these deeds, both were obvious forgeries.
Following the recording of the two forged deeds, the property was sold to an innocent and unsuspecting buyer who borrowed money to buy the property from an innocent and unsuspecting lender. When the true owner of the property learned of the forged deeds, he filed a quiet title action against the buyer and the lender.
Even though the Court conceded that the buyer and the lender were bona fide purchasers for value [definition: innocent parties who purchase property for value without notice of any other party’s claim to the title of that property], the Court ruled that the buyer’s warranty deed and the lender’s security deed were invalid because these interests were dependent on the two forged deeds. The Court noted that “[i]t is of no moment whether the deed records provided notice of the forgeries at the time [the buyer] executed the security deed on which [the lender] bases its claim; there was simply no title held by [the buyer or the lender].”
The case doesn’t mention whether the buyer and lender had title insurance, but without title insurance, both parties would have been left high and dry.
Don’t make this mistake; always purchase title insurance.