Understanding Owner’s Title Insurance Policies and the Risks of Hold Harmless Agreements. When purchasing a property, securing a clear title is one of the most critical steps in the process. Owner’s title insurance policies are designed to protect buyers from unforeseen ownership disputes and title defects. However, errors by title companies and the signing of hold harmless agreements can leave buyers and sellers vulnerable, raising important questions about liability and protection.

What is Owner’s Title Insurance?

Owner’s title insurance is a one-time premium policy that protects homeowners from title issues, such as undisclosed liens, encumbrances, or ownership disputes, that may arise after the purchase. Unlike lender’s title insurance, which covers the mortgage lender, an owner’s policy ensures the buyer’s investment is safeguarded. This policy is particularly valuable because even the most thorough title searches can miss hidden risks, such as clerical errors, undisclosed heirs, or fraudulent claims.

Common Errors in Title Searches

Title companies are tasked with conducting lien searches and ensuring the property’s title is free of legal complications. However, mistakes can happen, and they can have significant financial and legal repercussions. Some common errors include:

• Overlooking Existing Liens: Failure to identify unpaid taxes, mortgages, or other debts can transfer financial liability to the buyer.
• Neglecting Easements and Encroachments: These can limit the buyer’s use of the property and lead to disputes.
• Errors in Public Records: Misspelled names or incorrect legal descriptions can create roadblocks in ownership transfer.
• Unresolved Claims from Unknown Heirs: Properties with a history of inheritance may have lingering ownership disputes.

Outsourcing Title Searches: A Growing Trend

In recent years, many title companies have begun outsourcing title searches to foreign countries to reduce costs. While this practice may seem financially advantageous, it comes with significant drawbacks:

• Loss of Local Expertise: Local courthouse searchers often have a deep understanding of regional laws and nuances that foreign teams may lack. This can lead to missed liens or errors in interpreting local records.
• Communication Barriers: Language differences, cultural discrepancies, and time zone challenges can result in misunderstandings and delays.
• Extended Turnaround Times: Coordinating across different time zones and relying on external teams can slow down the process, which is problematic in time-sensitive real estate transactions.
• Reliability Concerns: Outsourced teams may not always adhere to the same quality standards, increasing the risk of errors and oversights.

The Risks of Hold Harmless Agreements

Hold harmless agreements, often included in real estate contracts, shift liability from one party to another. These agreements are not universally required by law in real estate transactions; they are typically used as a risk management tool to protect the title company. While they can safeguard certain parties, these agreements may leave buyers or sellers shouldering the burden of unresolved title issues, which can stem from title company mistakes, outsourced searches, or other oversights.

Here are some potential issues:

1. Unfair Burden: These agreements can shift liability unfairly, making one party responsible for damages or injuries even if they weren’t at fault.
2. Legal Complexity: If the language is vague or overly broad, it can lead to disputes and confusion about what risks are covered.
3. Negligence Concerns: Sometimes, these agreements might absolve a party from liability for their own negligence, which can be problematic.
4. Financial Risks: The party agreeing to hold harmless may face unexpected financial burdens, including legal fees and compensation costs.

A Case from Northeast Ohio: A Cautionary Tale

Consider the case of a property Buyer in Northeast Ohio. In the interest of full disclosure, Ohio Broker Direct did not represent the Buyer on the purchase of this property, however we were retained to represent him on the sale thereof. The Buyer signed a hold harmless agreement presented by the title company without being informed that it was neither required nor disclosed as an optional document. The title company implied it was necessary to close the transaction. Believing the agreement was routine, the Buyer paid for an owner’s title insurance policy and proceeded with the purchase.

After closing, the Buyer discovered lien issues on the property. When the Buyer sought assistance from the title company, the title company informed him that they were no longer liable due to the hold harmless agreement he had signed. They emailed the Buyer a copy of the signed hold hold harmless agreement stating “We got your email. The hold harmless speaks for itself.  We will not be covering the bill”, effectively leaving him to deal with the unresolved liens alone. Now, this property owner faces the option of either paying the liens directly or risking the possibility of being unable to sell the property and may need to expend substantial funds pursuing legal remedies.

This example highlights the grave risks buyers face when signing hold harmless agreements without understanding their legal ramifications. Originally intended to address minor typographical errors, these agreements are now being used in ways that can override the protections provided by owner’s title insurance policies. Consumers must be aware of their rights, and title companies need to be held accountable for the ramifications of their actions.

Protecting Yourself as a Buyer or Seller

Here are steps you can take to protect yourself during a property transaction:

• Understand Your Rights: Remember, buyers and sellers are not required to sign hold harmless agreements. Consult with a real estate attorney to fully understand the implications of any agreement before signing.
• Choose Reputable Title Companies: Work with experienced, professional title companies that prioritize transparency and accuracy in their lien searches.
• Invest in Owner’s Title Insurance: This policy remains a crucial safeguard against unforeseen claims or disputes, but be sure to understand its limits in the context of hold harmless agreements.
• Review Documents Carefully: Pay close attention to the details in all agreements, including hold harmless clauses, to ensure you aren’t unknowingly accepting unnecessary liability.
• Advocate for Local Searches: Encourage title companies to rely on local courthouse searchers who are familiar with regional laws and records, rather than outsourcing to foreign countries.

Conclusion

While owner’s title insurance provides valuable protection, the presence of hold harmless agreements and the potential for title company errors demand that buyers and sellers exercise caution. By understanding the purpose of title insurance, being aware of common mistakes in title searches, and refusing to sign agreements that unfairly shift liability, you can safeguard your investment and avoid being left to handle the consequences of title-related oversights.