The $400,000 Lesson: Why Every Signature Matters in Real Estate
What happens to a lender's mortgage when not all vested owners sign the documents?
A homeowner set up a life estate, designating her two adult children as future owners of her home after her passing. When she and her partner refinanced the home, they signed a $400,000 mortgage without obtaining her sons' signatures, creating a title issue that would drag on for years.
When the couple later defaulted on the loan, the lender's attempt to foreclose on the property was met with a lawsuit from the children, who claimed the refinanced mortgage was invalid because they never signed the documentation.
The two sons filed a counterclaim asking the court to invalidate the mortgage, which meant the lender now faced the possibility of losing its secured interest in a property worth more than $700,000.
Fortunately, the lender was protected by a First American Lender's Title Policy.
Upon receiving the claim, First American immediately provided a legal defense to its insured lender. Despite complex issues surrounding ownership rights and questions about the borrower's capacity, First American's claims professionals worked to minimize the lender's loss and protect its interest by paying a substantial amount to the adult children to settle the litigation and validate the insured mortgage in addition to paying the insured lender's defense costs.
The case underscores why title insurance matters: even seemingly straightforward transactions can hide legal risks that surface years later. Title insurance helps protect lenders against unexpected challenges to their security interest and helps ensure they’re not facing those challenges alone on matters covered by their title insurance policy.
Title insurance isn't just about paperwork. It's about peace of mind when the unexpected happens.
Disclaimer:
As with any insurance contract, the insuring provisions express the coverage afforded by the title insurance policy and there are exceptions, exclusions and conditions to coverage that limit or narrow the coverage afforded by the policy. Also, some coverage may not be available in a particular area or transaction due to legal, regulatory, or underwriting considerations.
Please contact a First American representative for further information. The services described above are typical basic services. The services provided to you may be different due to the specifics of your transaction or the location of the real property involved.