Sam and Martha, a newlywed couple, recently bought their first home from Peter. After a few months after the sale, they were sued by Peter's cousin, Paul, who claimed he owned 1/2 of the rights to the house with Peter and did not authorize the sale. Peter had told Sam & Martha about Peter's interest in the property prior to the purchase of the home, but assured them that he had authority to sell. 1. Would title insurance cover Sam & Martha against Paul's claim? Discuss in detail.
2. Are there any exclusions that might apply?

Sam and Martha Vs. Title Insurance

1. Title insurance would cover Sam and Martha against Paul's claim.  Paul's claim is a third party claim in the real sense.  Peter is assumed to have the legal authority to sell the property, as he justly represented.

This is because a title insurance policy insures against the defects in the title which are discoverable through an examination of the public record. This includes the defects in the title of recorded liens or encumbrances.

2. Some exclusions to the title insurance cover that might apply include:

a. defects created after the issuance of the policy or defects that the insured created.

b. The failure to pay mortgage on the house, if any.

c. Non-compliance with laws and covenants and specific taxes and assessments.

Explanation:

Title insurance is one class of an insurance policy that protects lenders and homebuyers from financial losses arising from defects in a property's title. Some title insurance policies are purchased by the property buyer to protect the lender.  Some other ones are purchased to protect both the buyer and the mortgage lender.

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