When Should One Buy Title Insurance?
Title insurance seems like such a poor value. Costs are usually $1000 - $2000. I've never heard of any claims ever being filed. It apparently only exists in the USA, so why don't home buyers in other countries find this necessary? This seems like such a shady topic... there's very little info available and only the title insurance companies seem to have a spin on why you should buy it.[ Edited by Reeeldeeel on Date 05/16/2004 ]
Well, Reeldeel you may not have heard of any claims being filed but I have. Heard of at least half a dozen. Participated in two. Probably two more where the title company's refusal to grant title insurance effectively ended lawsuits that otherwise would have dragged on for years.
Granted title suits are less common in single family residential than in the kind of commercial development I do. But also your title insurance costs seem high. Wouldn't hurt to shop around a little.
[ Edited by commercialking on Date 05/16/2004 ]
I don't know where you've been trying to find information about the need for title insurance, but there's a lot of information on this topic right on this site. See, for instance:
http://www.thecreativeinvestor.com/ViewTopic23580-12-9.html
As commercialking said, you ought to shop around for a better quote.
If you doubt that title insurance is necessary, I suggest you ask a RE attorney to tell you some horror stories of situations where people failed to get title insured. After you sit there for a couple of hours, you should feel differently.
At the risk of sounding contrarian...
Yes, title insurance is a good idea (and of course usually requried by lenders), esp. where you have or are getting a lot of equity. And if they won't issue it, you've saved some hassle. I usually do a doc search myself at the recorders office; if I see no reason for concern and the seller seems honest (I also check criminal and bankruptcy, records, and do web searches of seller's name for info), I may just skip it. A title opinion is cheaper and similarly reassuring; I know it's possible I could miss something. So could the title company or the lawyer.
The lawyers have scare stories, for sure, as do other investors. But (may I assume?) most of the latter's transactions have been trouble free? And think about it. When you have no problems, do you call your lawyer and tell her, "hey, that last deal was great, no title problems at all!"? All they see, typically, is the problem cases. It's also where their bread is buttered. So, careful though it may be, theirs isn't a particularly objective opinion.
Remember insurance in general is a gamble and the odds are almost always with 'the house" (insurers). A friend and partner has self-insured his 25 rental houses for years, and even though he's had a couple fires, he's saved a bundle. Not bad mouthing insurance per se, it just need not be an automatic decision. All depends on your threshold for risk.
Quote:
On 2004-05-16 11:24, loon wrote:
I know it's possible I could miss something. So could the title company or the lawyer.
loon,
If the title company makes a mistake but has issued title insurance to you, you're protected. If the attorney makes a mistake, you're protected.
If you make a mistake, who's protecting you?
Nancy Chadwick
Q: When Should One Buy Title Insurance?
I can't think of any deal that I'd risk a 10% chance of eating a lawsuit.....
A: Always.
I know it is expensive (we have similar rates here in Texas), but according to my RE attorney, about one in ten titles processed in the state have issues. How do you think all these RE attorneys stay in business
-Chris
[addsig]
Thanks, all, for the replies on title insurance. I discovered the TCI forum site this morning and I can't believe all the solid responses I've received so quickly.
Hi,
Nancy, you're right. If I make a mistake, I'm liable. Same with anything else. I use my gut (and research) to decide when I need title insurance. I get it for less than half of my deals, though. No problems yet. When I have one, I'll fess up and eat the humble pie. But I stand by my comments. Useful as it can be, insurance is a gamble, plain and simple, and the odds are with the house.
After reading all the replies, I must provide some more info. I just purchased a residential lake house for an investment. I took out a conventional morgage and the mortgage company required title insurance which I really had no choice but to pay for it. My question regarding whether or not to buy title insurance refers to ADDITIONAL title insurance offered by the title company. They indicated the insurance I bought at closing only protected me for title work performed by their company for the current transaction. The ADDITIONAL insurance would cover any mistakes made on any of the previous title transactions (I guess going back to the "purchase" from the Native Americans). Does anyone really recommend buying this aditional insurance for $1000+? One replier indicated I shop around. Who sells this stuff to individuals? I can only find insurance companies who would sell to title companies. If I don't buy the additional insurance, what's the worst that could happen should a problem arise? A bunch of legal expenses to straighten out some paperwork or is it worse where I could even lose the property?
How do you pass title to your seller? If you are using a warranty deed, then in the absence of owner's title insurance, aren't you self-insuring your place in the chain of title forever?
Seems like a good enough reason to purchase owner's title insurance.
Remember that the lender's title policy only protects the lender's loan. If a claim against the title is upheld, then the lender's title insurance guarantees that the loan gets paid off when their lien on the property is released. You, without owner's title insurance, lose your entire investment in the property. [ Edited by DaveT on Date 05/18/2004 ]
I didn't see in any of the posts where there was a discussion of Lender's title insurance (usually required with conventional loan) and Buyer's title insurance. Many people don't realize that Lender's title insurance does little, if anything to protect them. For their own protection, they need Buyers title insurance. Talk to a title company and ask them to explain the difference.
I know this isn't a typical property most investors would buy, but there has been a lot of stories in the local newspaper (SW Ohio) about an unscrupulous home builder who was taking the payments from the buyers and then never paying off the construction loans. He was depositing the money in his business account (somehow he got this by the banks...don't know how). Anyway, buyers who didn't purchase title insurance thought they "owned" the properties, but then found out they had their primary mortgage and the construction loan as liens on the property. Really hurt a lot of people, especially those who used their retirement savings to purchase the homes. Not sure of the outcome yet, as the home builder didn't have enough assets to cover all the costs when liquidated. I can tell you he is spending the better part of the rest of his live in jail.
Pardon my simplistic view but I try to keep the question of title insureane simple. If I buy any property for my use (refurb/resale or such) I always get title insurance. If its a Flip at a simultaneous closing where I really don't take posession of the property, I don't get title insurance, the end buyer does.
Tex,
In a simultaneous closing, are you sure you are not in the chain of title -- even if only for a minute? Don't you execute a deed transferring title to your buyer?
If so, are you giving your buyer a warranty deed? If this is the case, then you may want to reexamine your concept of the protection you may still derive from an owner's title insurance policy.