Suing a Title Insurance Company in Michigan: What to Do When They Miss a Lien

You paid hundreds of dollars for title insurance at closing, trusting the professionals to ensure your new Michigan home was free and clear of all debts. Then, six months later, you receive a threatening letter in the mail. A previous owner failed to pay property taxes, or a roofer was never paid for their work, and now a massive lien is attached to your home. Worse, when you call your title company to fix the mistake, they deny your claim and refuse to help.

Title insurance is designed exactly for this scenario, yet insurance companies frequently look for loopholes to avoid paying out claims. Whether your property is in Oakland County, Ingham County, or anywhere in Michigan, you are not powerless. In this guide, we will explain the difference between title policies, outline the most common missed liens, and show you how to force your title company to honor their contract through aggressive legal action.

Owner's Policy vs. Lender's Policy: What is Covered?

The biggest misconception in real estate is who the title insurance actually protects. Governed by Mich. Comp. Laws § 500.7301 within the state Insurance Code, title companies issue two distinct types of ALTA (American Land Title Association) policies.

The Lender's Policy: If you took out a mortgage, your bank forced you to buy this. It protects the bank's financial interest in the property, not yours. If a lien pops up, this policy will not pay to defend you.

The Owner's Policy: This is an optional policy you (hopefully) purchased at closing. It explicitly protects your equity and your right to ownership. If a covered title defect is discovered, the title company has a contractual duty to either negotiate and pay off the lien, or hire a lawyer to defend your title in court.

Common Title Company Failures (Micro-Niches)

Title searches are performed by human beings, and humans make mistakes. When an examiner rushes through public records, they frequently miss these massive financial landmines.

Missed Property Taxes

Delinquent summer or winter property taxes are supposed to be caught and paid out of the seller's proceeds at closing. If the title company misses a tax lien from the local township or the State of Michigan, the government can eventually foreclose on your home. Your Owner's Policy strictly covers missed municipal taxes that were recorded prior to the date of your policy.

Undiscovered Utility Easements

Imagine planning to build a pool in your backyard, only to discover that the local electric company owns a 20-foot wide utility easement right through the middle of your lawn, completely halting your construction. If this easement was properly recorded at the county level but omitted from your title commitment exceptions, the title company is liable for the diminished value of your property.

Missed Contractor Liens (Construction Liens)

If the person who sold you the house recently remodeled the kitchen but failed to pay the plumber, that plumber can file a Construction Lien against the house under Michigan law. If the title company failed to require a 'sworn statement' or lien waivers from the seller at closing, and the lien was recorded, the title company must step in and settle the debt with the contractor.

Legal Action: Suing for Breach of Contract

If the title company denies your claim, claiming the defect was 'exempted' or that you somehow knew about it, you have legal options. As demonstrated in Michigan insurance precedents like Bank of America, NA v. First American Title Ins. Co., 499 Mich. 74 (MI Supreme Court 2016), title insurance policies are interpreted under strict contract law. Any ambiguity in the policy is generally interpreted in favor of the insured homeowner.

Your local real estate litigation attorney will file a lawsuit at the local court, such as the Oakland County Circuit Court, Pontiac. The lawsuit will typically allege 'Breach of Contract' and demand that the insurer cover the cost of the lien, plus your legal fees. Prior to suing, your lawyer may also file a formal regulatory complaint with the Department of Insurance and Financial Services, Lansing to apply state-level pressure on the company.

Step-by-Step: How to Appeal a Title Claim Denial

Do not accept a denial letter as the final word. Follow this framework to appeal:

• Step 1: Request the Full Underwriting File. Demand the title company provide every note, search document, and manual they used when researching your property.
• Step 2: Review Schedule B Exceptions. The company will likely point to 'Schedule B' of your policy, which lists things they do not cover. Have an attorney verify if the specific lien was actually listed here. Broad, generic exceptions are often struck down by judges.
• Step 3: Draft a Legal Demand Letter. Your lawyer will send a highly cited letter outlining their breach of contract and giving them 14 days to cure the defect before a lawsuit is filed using Form MC 01, Michigan, State Court Administrative Office, Summons.

Costs and Timelines

Filing a lawsuit against a massive insurance corporation is not cheap, but the stakes are high.

A formal claim determination by the title company usually takes 30 to 60 days. If you are forced to sue, a breach of contract case can take 12 to 18 months to reach a settlement or trial.

Frequently Asked Questions (FAQ)