A title insurance policy protects the purchaser of real property from loss or damage caused by various circumstances. Covered matters include claims of ownership by parties with unrecorded deeds, fraudulent acts by the seller, errors or mistakes in the land records and yes, documents signed using an expired power of attorney. Exceptions to coverage, however, are expressly set out on Schedule B of your policy. If an expired power of attorney is a matter listed on Schedule B, the policy would offer no coverage for that issue.
Duty to Review
A title examiner thoroughly researches documents through the chain of title of a parcel of real property, including all deeds, mortgages and other liens recorded in the land records before issuing a title insurance policy. If a deed was signed using a power of attorney, the title researcher combs the records for the power of attorney that was used. Once the power of attorney is located in the records, the title examiner examines the power of attorney document in detail to make sure it was valid at the time the deed was signed. If the title examiner missed the fact that a deed had been signed under an expired authority, and the insured suffered a loss as a result, he could file a claim for damages with the title insurance underwriter.
Death and the Innocent Purchaser
All powers of attorney expire upon the death of the principal or maker. Some state laws, however, protect an innocent purchaser who relies upon the power of attorney without knowledge that the principal is deceased at the time the deed was signed. If the purchaser had no knowledge of the death of the owner of the property, a court could rule that his deed is a valid conveyance. The attorney-in-fact, or agent that signed the principal's name after his death, could be held liable for any damages caused by his actions. If the sale is challenged, a title insurance company would likely have a duty to defend the buyer’s interest in court or negotiate a settlement according to the terms of the policy.
Once a legitimate claim has been filed relating to a defective deed, a title insurance underwriter will generally seek the best course of action to correct the problem. If the seller can be located and is of sound mind, he may be asked to sign a correction deed, which is basically a redo of the original deed that states it is correcting the defective deed. The title insurance claims department usually will contact the appropriate parties and determine what is required to correct the deed and cover any related expenses.
Duty to Defend
If the insured is sued for recovery of the property or to set aside his deed due to the defective, expired power of attorney, he would generally file a claim with the title insurance underwriter. The underwriter’s legal staff may, at this point, handle his defense in court or choose to negotiate a settlement according to the terms of the title insurance policy.