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Title Insurance…. it shows up on your closing settlement statement, it’s hundreds of dollars, and most people have no clue what it is, why it’s there or why they HAVE to buy it.
(Well, you don’t HAVE to buy it, if you’re paying cash for your real estate. But if you are financing your purchase (like 99% of people do) then your lender will REQUIRE you to purchase title insurance to protect THEM, not YOU. Owners policies are available, and you should get one …)
There is a great overview of title insurance at The Mortgage Professor. It’s a couple of years old, but title insurance hasn’t changed a lot in the past decades.
There is also an article in today’s Wall Street Journal that discusses title insurance. I’d post a link, but you have to be a subscriber. I’ll try to get the article converted and on ThompsonsRealty.com later today. Title companies and title insurance have been in the news a lot recently….(a Google News search for “Title Company” for December returns 8,550 hits…).
In short, title insurance is an insurance policy that protects the lender (and the owner IF YOU GET THE RIGHT KIND ) against defects in title. How can a real estate title be defective you ask?
Here’s 21 examples of “title defects”, there are more:
1. Forgery
2. Fraud in connection with the execution of documents
3. Undue influence on a grantor or executor
4. False personation by those purporting to be owners of the property
5. Incorrect representation of marital status of grantors
6. Undisclosed or missing heirs
7. Will not properly probated
8. Mistaken interpretation of wills and trusts
9. Mental incompetence of grantors
10. Conveyance by a minor
11. Birth of heirs subsequent to the date of the will
12. Inadequate surveys
13. Incorrect legal descriptions
14. No-delivery of deeds
15. Unsatisfied claims not shown on the record
16. Deeds executed under expired or false power of attorneys
17. Confusion due to similar or identical names
18. Dower or curtesy rights of ex-spouse or former owners
19. Incorrect indexing
20. Clerical errors in recording legal documents
21. Delivery of deeds after the death of a grantor
2. Fraud in connection with the execution of documents
3. Undue influence on a grantor or executor
4. False personation by those purporting to be owners of the property
5. Incorrect representation of marital status of grantors
6. Undisclosed or missing heirs
7. Will not properly probated
8. Mistaken interpretation of wills and trusts
9. Mental incompetence of grantors
10. Conveyance by a minor
11. Birth of heirs subsequent to the date of the will
12. Inadequate surveys
13. Incorrect legal descriptions
14. No-delivery of deeds
15. Unsatisfied claims not shown on the record
16. Deeds executed under expired or false power of attorneys
17. Confusion due to similar or identical names
18. Dower or curtesy rights of ex-spouse or former owners
19. Incorrect indexing
20. Clerical errors in recording legal documents
21. Delivery of deeds after the death of a grantor
OWNER’S TITLE INSURANCE will protect you against these hidden risks which would not be disclosed by even the most meticulous search of public records. LENDERS title insurance protects the LENDER if one of these things happens. YOU, if you don’t have owner’s title insurance, are left with NOTHING.
You may read that list and think, “those things never happen.” Well, to be blunt, you couldn’t be more wrong.
True story: We have a client who bought several acres of land west of Phoenix about five years ago. He was going to build his dream home on it. He contacted us because he wanted to list half the parcel (with the way the land has appreciated, he could sell half the land to pay for building a whopper of a home on the other half.) He didn’t have owner’s title insurance because he wanted to save the $400 it would have cost him. When we were investigating listing the land, we had a title company do a preliminary title search. Lo and behold, it turns out that the land he bought had been ILLEGALLY SUBDIVIDED prior to his purchase. In other words, he bought a piece of land that couldn’t have legally been sold. So did several other people. What does this mean to out client? It means the land he thought he bought several years ago may not even be his. It’s a big giant legal mess that may never be resolved. It means he could be out EVERY DIME he paid in principal, interest and taxes. (But he did save $400 by not buying an owners title policy!) Needless to say, he’s just a bit stressed out and ready to maim someone…
Another true story, recently happened in Virginia. A couple buys a home. EIGHT YEARS LATER, someone pops up and says it was her mother’s home and they are the rightful heir. Turns out she was RIGHT. It IS her home. So the people living there have two choices, move out—losing everything they’ve put into the home in the past eight years—or BUY the home from the newfound legal owner. Yep, they get to buy their home AGAIN, at the CURRENT market price, not what they “bought” it for eight years ago. Their lender had lender’s title insurance, so the insurance company will pay off the original loan. But the people who thought they owned a home did not have owner’s title insurance, so they get NOTHING.
Owner’s Title Insurance…. it’s a one time payment when you purchase a home. Cost depends on the home, but it’s cheap when it comes to what it could cost you if you don’t have it. Please please please don’t EVER consider purchasing real estate in any way, shape or form without OWNER’S title insurance!!
Regards,
Jay
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{ 4 comments… read them below or add one }
Excellent summary of Title Insurance. We work with new insurance customers all of the time and I never have a really good explanation of why you need title insurance. I will be using the information in your blog to help enlighten my clients. Thanks again.
Good article. Interesting how this differs from the UK.
A very interesting article in showing how Title Insurance works for both the lender and the owner. This is particularly important for homebuyers to understand the value of getting specific insurance for their own protection.
This article on Title Insurance is helpful and informative; with good examples of significant impacts on people who try to save money from cutting down insurance spending. The information is advisable that it is never worth taking the risk for homeowners to purchase a property without the appropriate insurance. WELL DONE!