When my clients discovered that a neighbor’s deed included a strip of land across their driveway, I advised them to make a claim on their title insurance policy. The claim was denied, not because it wasn’t real, but because my clients had inadvertently terminated their policy of title insurance by conveying their land to their living trust by quitclaim deed rather than by warranty deed.
Title insurance in the United States is usually issued on policy forms created by the American Land Title Association (ALTA), which are adapted for each state. Before the adoption of the 2006 ALTA title insurance form, when the insured conveys all its interest in the real estate without warranty, the owner’s policy of title insurance terminates.
The primary way of conveying title insurance without warranty is by quitclaim deed, which is a common way of conveying property when payment is not made. How this custom developed, I don’t know, but it can be devastating if there is an ownership dispute.
The 2006 ALTA owner’s policy form includes living trusts as insureds under the title insurance policy, but most owner’s policies of title insurance are made on pre-2006 forms.
A lawyer setting up a living trust–or preparing a conveyance of a gift of real estate to a relative, a church or another charity–has two choices to avoid potential malpractice liability:
- review the existing owner’s policy of title insurance to make sure that the conveyance won’t leave the the client unprotected if an ownership dispute pops up.
- avoid using quitclaim deeds except with respect to property that the client never owned and other very limited circumstances.