Real Estate Law
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I have dealt with situations similar to this, although not the exact same set of facts, and my opinion would be that this should generally be covered by your title insurance policy. The purpose of title insurance is to insure that clear title to the property is passed on to you and it is the responsibility of the title insurer to discover any potential title issues and ensure they are resolved before, or at, closing. Of course, different title insurance policies contain different exceptions, but generally this issue should be handled by your title insurer. I would immediately notify your title insurer of this issue and ask them what their plan to resolve this is.
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