Title Insurance May Be
A Smart Investment
The Denninger Report - by Gini Denninger
You have bought a property, and one day you come home to find a legal notice that someone is claiming to have rights to your property. The property that had a proper title search and was sold to you as free and clear of all encumbrances... What to do?! Besides becoming highly excited (understatement of the year!), you pick up your phone and call the attorney that handled your closing. His first reaction will be to say “I will get back to you” and “I am glad I encouraged you to buy the Fee Title Insurance Policy!”
What are we talking about here? Welcome to the little understood world of title insurance. Poorly understood because many may be aware of its existence, but few really know how it works. Even seasoned Realtors are willing to admit they are shaky on what title insurance does and why you, as a buyer, might need it. This form of insurance is not well understood except by those that deal directly with it; that being attorneys, title examiners and others that deal with the behind-the-scenes workings of getting a property to close. This is a topic Realtors will refer (with relish) to attorneys, when asked about it. Truth is, this topic rarely ever comes up between a Realtor and their client.
So, what is title insurance exactly? Title insurance is insurance that protects you, the owner and the mortgage holder (if there is one) of a certain property against defects in the title to that property. There are generally two policies which buyers must be made aware of: owner’s (“Fee” - a legal term derived from English common law dating back to medieval times) and lender’s (“mortgagee”) title insurance. Lenders, (aka “the bank”), will require that a title insurance policy be purchased at the time of closing to protect their interest in the property, (aka the loan amount). Home buyers mistakenly assume this insurance protects them too, when actually, it does not!
During the home buying process, it is mandated by law that the buyer be offered the opportunity to buy an owner’s “fee” title insurance policy only if they are obligated to buy the mortgage title insurance. Buyers in this position are supposed to be made aware of what these insurances are, what they cover during the buying process, and at least once, will be expected to sign a document attesting to the fact that they were informed. Additionally, if a buyer buys both the fee and mortgagee insurance at the same time, they will get a discount on the mortgagee insurance! Not all attorneys recommend that buyers purchase Fee Policies and as a result they only quickly cover the details as required by law, leading the buyer to think it is not necessary to buy a policy to protect themselves. In fact, when I was a fledgling real estate sales person, I remember this topic being covered in a class. We were told that, in most cases, this is an unnecessary cost for the buyer. But, as I matured into the profession, I see now that I would never buy a property without this insurance, because of the low cost and high potential value.
Read Part 2 >>