Owner's Title Insurance.95% Buy It, 10% Know Why!
(This is a Virginia specific posting, disregard for other states)
Update: An Atlanta Realtor did research and found that the number of cases of Total Loss in Georgia was less likely than getting struck by lightening! I’m looking into Virginia’s frequency of Title Insurance claims. You can’t comfortably buy something if you don’t know the statistics behind it, but you also can’t opt out, so what do you do?
Owner’s Title Insurance is OPTIONAL! That doesn’t mean “don’t get it”, it means, “know what you are buying before/if you buy it.”
- There are two types of Title Insurance when buying a house in Virginia.
- Lender’s Title Insurance. REQUIRED
This is a fixed price by the state and is required by your lender, so stop thinking about it. It is paid once at closing, it is NOT monthly.
For a $400k loan, this comes to about $1,000.
This is to protect the bank’s investments (loan to you) from a problem with the title. - Owner’s Title Insurance. OPTIONAL
This covers what the Lender’s policy does not cover. Also a one time payment.
You have 3 options:
a) No coverage (rarely do people know this is an option!!)
b) “Standard” policy. $700 (reissue rates are less, more below about that)
c) “Premium” or “Alta” Policy. $1,000 ($500k house, $400k loan)
The OWNER’S TITLE policy will be the focus of this blog. This policy is 100% OPTIONAL.
90% to 95% of buyers buy the Owner’s policy. I have no problem with this, however I would guess that 80% of people buying this have no idea what it is or that they even have an option. That I have a problem with.
- Why do people buy Owner’s coverage?
- It is snuck into the the closing documents (HUD1) by default with NO mention of it being Optional. Sometimes the “premium” policy is put in by default. That really bugs me.
- It is sold as being a blanket coverage that protects you from everything and the fear of losing your house, and going bankrupt. I have yet to get any stats on how often this happens. 1 out of 100? 1 out of 10,000? Once in the USA every year? Or does the insurance cover the costs to cover the $500-$5,000 in legal fees to clear up the issue?
- It isn’t disclosed that the title company selling you this insurance is making a 80% commission on selling you this policy.
- Realtors do not get a bonus for pushing this (thank God), but if a Realtor doesn’t say “you must get it” they will be exposed to potential future liability. For example, if they sell 100 homes and they tell their client NOT to get it, and 1 has an issue, guess who they will sue? So it is easier for Realtors just to say “buy it.” It doesn’t cost them a dime. We like to say “Learn about it, and then decide.”
I don’t mind Title companies making money. What I don’t like is the lack of disclosure. It is not clear to the buyer that this is optional and that most of the profits of the closing come from this. Not the token $200 “fee” they charge. They make their money from Title insurance.
- Again, I am not saying NOT to buy Owner’s Title Insurance. I’m just saying:
- Know what it is.
- Who makes money if you buy it?
- Are you getting the basic or premium?
- Ask your Realtor or Title company for some statistics on how often these policies are engaged. (I’ve yet to get an answer for this one)
- Examples to ponder:
- The closing company pitches Owner’s insurance as a nearly 100% coverage if something goes wrong with your title. However I spoke to a woman that had to sue her title company to get them to perform on her insurance. She put it this way… “I paid $1,000 for a policy, $800 goes to the closing company as a commission, $200 goes to the policy writer. For $200, how likely are you going to be protected from a $500,000 loss?”
- I was once at a closing in Falls Church. The buyer was a President of the Closing company. THE PRESIDENT OF A CLOSING COMPANY DID NOT BUY TITLE INSURANCE FOR HIS HOME. Keep in mind that he would effectively get a 80% discount and he STILL didn’t find it necessary for his personal home. I asked him why he wasn’t buying it and he said “I do the title search personally and I double checked and made sure there was nothing wrong with the Title history.” Then he had the nerve to say “But you should bring your buyer clients here and make sure they do buy the Owner’s policy.” This made no sense to me. Was he not going to double check my client’s Title history as well as his own personal search?
- Remember that you are buying the Lender’s policy too. If something was hugely wrong with the title, wouldn’t the Lender’s policy kick in to clean things up (as in legal fees)? This part isn’t clear to me. If the house is $500k and you put down $25k 5%), are you really paying to insure against $500k, or is it more of an insurance to protect the $25k you have put down?
- On the other hand…
- I have spoken to a Realtor that has been in business for 20 years and she says you would be nuts to not get the policy. She has seen first hand one person that would have had major trouble if they didn’t buy the policy. Now does major trouble mean the loss of the house? All $500k or does it mean they would have had to pay $1,000 or $2,000 in legal fees. I would never pay $500 to insure against a 1 in XYZ chance of having to pay out $1,000. But I might pay $500 to cover $500,000 (if it really even covers you.)
- One of my favorite closing companies in Alexandria says that they use the Owner’s title insurance all the time to clear up title problems that come up. So A buyer buys a house in 2002, and buys a policy. IN 2007 they sell th house but something pops up on the title. This company says that since the seller bought the policy, they were able to close. If they hadn’t bought it… (it isn’t clear if the alternative was a) losing the home (probably not), cover legal fees to clear it up c) ability to close immediately vs delaying closing weeks or maybe months (most likely)
Basic vs Premium
The Premium main feature is that it is supposed to protect you beyond your purchase price. So if your $500k house appreciates to $600k, the basic policy will protect your $500k while the premium protects $600k.
My wish list:
1) That Owner’s Title Insurance would be renamed to “Owner’s Title Insurance (Optional)”, so that consumers would know they have a choice.
2) That I could find actual data on how often these policies are engaged. Are we talking 10% of the time? Once in 100,000? And of those what did it actually protect against. Consumers deserve to have this data.
- Dear Closing Companies, can somebody post a comment answering these few questions:
- Out of your last 1,000 deals, how many times did an owner’s policy get engaged.
- Take the last 5, what would have happened to them if they didn’t have a policy?
- What actual real life “worst case” (because that is how policies are sold) examples do you have of somebody NOT having the policy and being adversely affected by this? What did they lose? $500 in legal bills or a $500k house?
Again, I’m not saying to get the Owner’s coverage or no
t. I don’t care if you do. If it makes you sleep better at night, great, I won’t be disappointed. I will be disappointed if you buy it blindly without understanding it.
Other little known tips:
1) Try and get a Reissue rate. If the former owner bought the property within the last 10 years, they probably have a policy. Track that down and save 20-30% on the Owner’s portion of the Title insurance. If lost, the former closing company can send a fax for $25 to prove the insurance was purchased. Take that $300 in savings and use $10 and donate it to StBernardProject.org.
Conclusion
I am in NO WAY saying not to buy Owner’s Title Insurance. I am not even implying it. I am just saying to make sure you know what you are getting. I prefer to give information instead of giving recommendations, but I can say that if you are at all uncomfortable waiving Owner’s Title insurance, then you SHOULD get it so you can sleep well at night. This is not one of those, “when in doubt, don’t get it” issues.
Here is a link comparing the standard policy versus the premium policy. I still don’t think this is enough information to make an informed decision. Click for link to Owner’s Title Policy Comparison chart. This sales sheet is obviously designed to make the premium policy look like it covers 5 times that of a standard policy.
75% of my clients end up getting the standard. Maybe a couple have bought the premium. I don’t personally buy any Owner’s title insurance, but that is just me, and NOT a recommendation.
Comments? Anybody use one of these policies?
– Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4006
Videos at YouTube.FranklyRealty.com
Housing bubble? Arlington, Alexandria, mls, homes, Real 22201, 22314, Fairfax Va, DC Realty, Realtor
- 3
- January
- 2007
This blog had my head spinning. The majority of the informaton seems to be written by parties who have no experience in real estate. First off, yes the title agent does make profit – so does any other insurance agent – the closing atty is typically a title insurance agent and takes much risk for that. There is also many things that agents have to comply with that are very expensive and time consuming. Title agents have to retain expensive E&O. When a claim is made it is usually also made against the atty’s E&O policy. Typically, they have around a 5-10k deductable which has to be paid by the atty, even in some cases where its not the attys fault. Yes the owners policy pays for title examination errors but those are the rare instance of claims I see. With the amount of fraud going around right now with owners and lenders – this coverage is even more necessary than ever. Imagine buying a foreclosure proprety and then finding out the prior owner is claiming it was a fraudulent foreclosure – or buying a new home and finding out that the builder lied and did owe 1000s to a supplier. In GA all premiums are standard – there is no way to get a discount as they must charge the rates posted with the insurance commissioner. This cost is the same whether you went to the title insurance company or an agent/atty. All lenders require a policy on first mortgages and the additional cost to add on an owners policy is typically $100 simultaneous issue rate. Finally, any attorney that bought property and didnt get it is probably not a real estate attorney. I think that we probably see around a 5% claim rate and only about 1/10th of that is due to title examiner error. The rest are improperly recorded items or clerk errors, fraudulent transactions, property line or legal errors due to surveys – things that would not be recoverable without insurance. Most that we see are defendable but it takes attorneys and fees to correct the problems and this is all covered under the title insurance.
Hello Wendy, I really wish you would put your company name and title on here.
Every state is different. For your state it might only be $100 difference, but in Virginia it can be $600-$1000. And your example was with a foreclosure… sure, MORE reason to get it. But are you saying the flip is true too, that you should not get it if the home had one owner for 50 years and you have never seen a cleaner transaction or title? Can’t have it both ways.
And in no way am I saying not to get title insurance. That would be stupid of me to say. All I am saying is that you should know what it is, and who makes what.
I sat in on a closing the other day. The buyer said to the closing attorney “Is this something I have to buy”, SHE DID NOT ANSWER THE QUESTION!!! She skirted it and instead went into the buyer’s options of buying the standard vs the premium. Implying that his only option was to buy one of two offerings. To me that is lying. Just dead wrong. If he knew she was making 80% on it, and if he knew she skirted his question, he wouldn’t be a happy camper.
That is the only purpose of this post.
Thanks for the stimulating info. I just closeD last week but my bonehead atty messed up the HUD and left off the title insurance. Now they are trying to collect another $1500 for lenders and owners policy (enhanced, of course) and I wouldn’t have even noticed if they hadn’t left it off and tried to get it after the fact. I’m struggling with whether or not to get the owners policy. It’s a foreclose…
Hey Frank,
I’ve been working with our attorneys to come up with some articles that outline real life examples when the owner’s title insurance policy came into play: http://www.federaltitle.com/claims/
Hope these stories are what you had in mind! More to come…
Thanks,
Nikki
Hi Frank,
I am Asst Operations Mgr and do the underwriting for a Georgia title examination company, Augusta Title, Inc. I’ve been in this industry for 25 years. We also have an affiliated Florida agency and work occassionally on commercial transactions throughout the southeast.
I think Nikki gave some good examples but did want to comment on that 50 year title that’s been owned by one party. That search can actually be one of the toughest to run in Georgia because once you get back 50 years the records get cloudy. You’re also bound to run into a probate at that point which brings heirs in. Old probates are tough to navigate and can leave claims open for years to come, especially if children were involved.
Also, old properties have problems all the time with legal descriptions, encroachments, and other survey issues. Cant tell you how many times I’ve found that the long winding driveway someone has been using they dont have any rights in because grandpa sold that land a couple of years ago.
Granted, we do look for these things but it can be easily missed especially when your using old handwritten deeds. So with the old properties probate and survey is usually the issue.
Another big thing we have to watch for is divorces. A deed may be of record where a ex-husband transfers his interest in the property but without reviewing all the divorce documents you may not know that upon sale the wife has to give the ex 1/2 of the proceeds of the sale. This again is something you look for but the divorces arent always filed in the same county as the property so you may not even know.
I could go on with examples all day but simply put, While I will admit that title insurance is something the odds say you probably wont need, it is something that when you do need it is irreplaceable. It is well worth the price when you consider loosing your property and equity.
I did want to comment on the attorney that didnt answer the purchaser’s question. That was wrong – the attorney has a duty to inform them that Owner’s coverage is optional. Lenders is not. They also have a duty to inform a purchaser of what it means if they dont purchase title insurance.
Thank you for your engaging blog on this topic. Here is my problem with Owner’s Title Insurance…How would title people like it if they went to the doctor for a procedure and he/she said…Here are the charges for this surgical procedure. That line there is optional you can choose to buy malpractice insurance in case I screw up while I have you opened up but if you elect to not buy my insurance then you are on your own if I screw up. This is EXACTLY what the title industry is doing…buy this insurance to cover any mistake that we may have made. I’m closing on a home in July and I will not be taken hostage on this sham! Know this title company…do your job correctly and there will be know worries…screw up? and I’m coming after you!
I just spoke to the settlement company I’m using and they made it sound like the Owner’s Title Insurance is required on a home purchase. In fact, they didn’t even ask if I wanted standard or premium coverage – they automatically chose the standard coverage for me and my guess is that it’s because they get their cut of the profit either way so there’s no real incentive for them to up-sell.
At a minimum, they should ask us if we wanted the insurance and if so, what type of coverage we want. How would you like it if you rented a car and they automatically assume you want to purchase insurance coverage and don’t tell you that it’s optional?
I will be closing on a new home in the middle of an established community built by a major national developer (Toll Brothers). It would seem to me, that I would be at an even lower risk, then buying from a previous owner, and the owners title insurance would be a waste of $$$. By the way, the charge for a $600K home is almost $2500. The lenders insurance about $1100. Seems excessive. Comments please.
What does your agent say?
I can’t give advice on this, especially if I am not your agent.
No real estate agent involved. We visited the sales office of the developer and went from there. Closing in about 3 weeks and the latest GFE shows both title insurances, which led me to research and your blog.
Should have used an agent. Doesn’t cost you a dime, and we might actually know a thing or two and some of the builder tricks they use to get a few several thousand more out of you.
Oh well.
I am now the poster child for Owner’s title insurance in Virginia. I had a good contract on my house, I was in the process (on the plane) moving to Idaho when I found out, 2 days before closing, that there was a problem with my title. I had paid cash for my house, have an owner’s policy. Apparently the guy I bought the house from 4 years ago bought it when it was in foreclosure from the previous owner. She was in foreclosure with Washington Mutual, and an unauthorized person signed off on the foreclosure sale to the guy I bought the house from. He had no idea. I had no idea, my title search didn’t reveal this. However, my buyer’s title search showed it. Now I’m screwed. I’m here trying to find out what they’re SUPPOSED to be paying me. So far I’m renting in Idaho instead of buying (since my purchase was contingent on my getting paid on VA house) and yesterday my buyer said they will be looking for another house since they can’t wait the months to a year that I’ve been told it will take to clear this up. Now I have a vacant house, lost contract, and a title claims rep that won’t return my calls. Wow, I need help. Think I’ll call another attorney tomorrow. Mine seems to be in bed with title insurance company… probably not good.
I don’t understand.
Poster child for what? For buying title insurance or buying it and it not being useful when you needed it?
I thought title insurance was for exactly this type of thing?
Please re explain
Poster child for buying it. We’ll see how this pans out, but I have mounting financial loss and no one is helping until *I* can get the house sold. Wish me luck selling it with a defective title. Until then, I just don’t know how I’m going to afford the expenses.
I am slow.
Seems like you are the poster child for NOT buying title insurance.
My understanding was people bought the insurance EXACTLY for the reason you bought it. And it is supposed to be a simple slam down of the title insurance policy and it would fix all problems and let you proceed to closing immediately and not have to wait months or years to fix it through the courts.
If you are having to fight, hire lawyers etc, that to me does not sound like a successful policy. Maybe I can get a title insurance rep to chime in.
I have to agree that Becky would only be the poster child for Owners title insurance if her title company had swooped in and saved the day as a result of coverages included in her policy. In a case in which coverage exists, this is is exactly how it happens. The title underwriter (for the seller) will typically review the situation and issue a Letter of Indemnity to the agent for the new title underwriter (for the buyer) thus allowing the transaction to go to settlement. This Indemnity basically tells the new title underwriter that if there are any costs incurred in clearing up this title, they will be covered by the seller’s title company. Such an indemnity is usually sufficient to convince the new title company that they can go to settlement without any future risk of liability as to the issue in question.
Now, I hate the standard lawyer cop out that “I cannot comment on the specific title claim or potential claim in question without knowing all the pertinent facts” but, I cannot comment on the specific title claim or potential claim in question without knowing all the pertinent facts. There are just too many variables that could impact Becky’s particular title issue. In any event, were I Becky, I would be applying as much pressure as possible to both her title agent and that agent’s underwriter to either get this issue resolved or at least to coordinate with the new title agent (or underwriter) so as to motivate that new agent just to get this deal to settlement and fix the problem later. If that isn’t working, I would try to get the Realtor who recommended the first title company involved. Title companies generally get motivated very quickly when the Realtors from whom business is referred start to express their displeasure.
Actually my title insurance company did say they would ‘insure over’ the problem, but New Republic, the buyer’s title insurance company, would not accept that. So I’ve been told the buyer is looking elsewhere. I have, however, refused to sign a release releasing them from the contract. I believe their attorney, a hack at best, has gotten ill advice from someone who told him that he should not allow this house to close due to the defective title. So there is a certain amount of secrecy as to what the buyer was actually told. Overall, I am attempting to deal and push as hard as I can, but relisted the house today.
Well, then is sounds as though your Owner’s title policy is working exactly as advertized. If your title insurance company is willing to “insure over” the issue, then there is really no reason why the buyer’s settlement company or attorney should not be willing to go to settlement. Sounds like that is where the problem lies. Perhaps you should suggest to the buyer that he/she should move the settlement to the company that did your settlement when you purchased the property. They will certainly be happy to get it done.
So my title insurance company still won’t return my calls…. leaving me to drown in my efforts to mitigate my damages alone. House has a showing Sunday, but then would YOU put a contract on a house with a disclosed ‘defective title’? I wouldn’t. I’m trying to get a letter from my company saying they will insure over and through this matter, but no luck yet. They did say in an email they would insure over, but I need something official to calm potential buyer’s fears (if that is possible). Do I need an attorney to work with my insurance company for me if they continue to ignore me?
Scott,
If buying an Owner’s policy is considered working as advertised when other settlement companies won’t honor the “insure over”, then I would consider that broken.
If the settlement company freaks out the buyer, then it is too late to say “maybe somebody else will insure it.”
Yes, recommending that the buyer go back to the first settlement company might work.
Now the question is does the seller have “marketable title,” as I believe the contract calls for, and if not, can the buyer walk?
I finally got a manager on the phone, who called the buyer’s title compnay and the buyer’s inexperienced attorney, and says we’ll hear something Monday. I’m hoping this nightmare may be over…
I’ve been a lender in Northern Virginia for the past 8 years (and have provided financing for my clients purchasing your listings — small world!)
I’ve struggled to get a crystal clear understanding the Owners Title insurance. I’ve asked several title agents and the uniform response is: “it protects your position of equity in the property in case of a title defect.” Sounds much like the canned Windows response “Error 0000495L6 detected.” It’s technically right, but doesn’t tell you anything.
Like you, I was curious for many years to figure out the real claim numbers behind the policies. I work closely with 2 major title companies in the DC area and have yet to experience a claim first hand. Some of the agents say its good luck, while there is one that says Owners Title Insurance is just an unnecessary expense for buyers and a cash cow for them. As I fully do not agree with that comment, I have to agree with your remark on Owners Title Insurance not being explained. I’ve attended roughly 800 closings (I attend as many of my closings as I possibly can) over the past few years and have gotten to sit in and listen to title agents do their thing. Of all the agents I know, ONLY TWO will let the clients know this is an optional charge. Most agents will simply list off the total “lump title charges” and not bat an eyelash at the fee.
Title agent: “…and these are just your title charges in order to get your loan. Moving on to your transfer taxes and escrows…”
From the 1,400+ closings I’ve had, I’ve never heard of 1 title claim (purchase transactions equate to about 60% of those closings.) It means that from roughly 850 purchases, not a single title claim. Not to say they don’t happen, just not in my data sample.
I agree with you: this charge should be CLEARLY explained. Last year I was at a closing where a petulant title agent told my clients that the “Enhanced/Eagle Owners Title Policy” was a mandatory charge. I quietly pulled her aside and away from my clients, told her that fact was not accurate and to please correct it. She proceeded to raise her voice at me and said “what do you care, it’s not like I go and take your commission away, how dare you?!” The Title company manager/owner was in the next office, came out after listening to her rant, corrected her in front of clients, and continued the settlement himself. She stormed out in a tantrum. This is a clear example of how uneducated some agents are in respect to the title insurance. Owner was embarrassed and apologized for her behavior. From this I also learned that some title agents clearly work on full commission.
For title agents: This charge appears on purchase HUD 1’s. Practice a smart response before closing and have the answers ready for questions you know buyers will ask. It’s much better to answer questions with responses you’ve already given plenty of thought to than to do your best to hide the fee. It is a legitimate charge with a purpose; why not just explain it and show it has value? 4/5 times at closing the buyers will turn and ask me if they should get it. Do to legal reasons I have to be exceedingly cautious of what I answer and how I answer it.
Thanks Frank, GREAT post. The ultimate reason I landed here was because I go to closing on my purchase in 7 days and see a hefty $1,900 charge for the Owners Title Insurance. I wanted to read more on it before I made a decision. I already checked the title work; looks good. I have already decided I will not purchase it. Thanks again for creating this post. Lots of great information and has given me valuable information helped me reach my final decision.
Wow, great comment. I hope others will take the time to understand it like you have. I also have been in a closing where the other side’s client literally asked if it was required. The settlement person said YES. Since I worked for the other side, I did not say anything, but was grossed out.
They get much more with the higher policy.
I found this blog to be really helpful, thanks for posting! I am going to closing next month and had the same string of questions for my lender. Is owner’s title insurance required? How often is it really used? What exactly it at stake if I opt out? My lender referred me to the title agent and I let him know I would be researching on my own as well. He did tell me it was optional but strongly encouraged. So I’m glad I got the truth on that front. The insurance in my case amounts to approximately 1500 of the settlement charges, a third of that is owner’s. It doesn’t state that it is optional so I’m glad I asked. If it is optional, i am now wondering– is it something I can shop around for? Do I have to go with the one they are offering me? I’ve got a lot of research to do before I make my final decision. If I come across anything life changing I will certainly share.
Thanks Jessica,
Every state is different. Occasionally I hear rumblings of “ala carte” title insurance (whether it be just owners or both) and somehow it always gets shot down, so I really doubt it, but let me know. Also note that there usually is a PREMIUM owners and a Standard owners policy. Most put the premium by default. Also ask about a “reissue rate” if the previous owner bought within 10 years.
I am purchasing 5 acres in Colorado and having a custom home built. I just got the title search today, I am supposed to close end of December.
The title company sent me the paperwork on the search.
(a) ALTA Owners Policy 6-17-06 $350,385.11
Rebecca R. Goldsmith
(b) ALTA Short Form Residential Loan Policy 6-16-07 $330,687.00
Cherry Creek Mortgage Co., Inc., its Successors and/or Assigns
PREMIUMS:
Owners Policy 515.00
Bundled Loan Policy 441.00
Form 110.1 Delete 1-4 OP 60.00
Since I had no idea what this was, I did a Google search which landed me your blog page.
nowhere in this documentation does it state the above premiums are optional.
The title documentation does state that there are judgements:
Entitled: Transcript of Judgment
Executed by: Equable Ascent Financial LLC FKA Hilco R.
Against: Laura Martinez, et al
Amount: $2,556.12
Recording Date: August 9, 2001
Recording No: Reception No. 210076049
So in this case…. is it advisable to get the insurance? Originally since it was just a land purchase…. I wasn’t really going to bother with it but since the previous property owners can’t seem to pay their taxes or whatever is wrong with the property, should I pay the insurance to allow all of this to get cleaned up?
I was under the impression that before my builder purchased the land, they required the previous owners to clear all this up so it may just be a delay in recordings that is keeping this on the records still? The land was purchased by the builder in June.
I also found a note in here “bundled loan premium rate” so again, no mention of standard versus premium.
NOTE FOR BUNDLED LOAN POLICY: Unless stated contrary herein, the Company will incorporate and provide the following ALTA/Colorado endorsement(s) (including the versions of ALTA 06 endorsements) on the ALTA Short Form Residential Loan Policy or ALTA Loan Policy, together with or included in said loan policy is a tax status letter, commitment vesting and all-inclusive rate.
Endorsement ALTA 9 or 9.3/Form 100 Restrictions
Endorsement ALTA 8.1 Environmental Protection Lien
Endorsement ALTA 4.1/Form 115.1B Condominium or ALTA 5.1/Form 115.04 Planned Unit Development
Endorsement ALTA 4/Form 115.1 Condominium or ALTA 5/Form 115.2 Planned Unit Development
Endorsement ALTA 22/Form 116 Location
Endorsement ALTA 28-06/Form 103.1 Damage to or Forced Removal of Improvements
Endorsement Form 100.29 or Form 100.30 Mineral Rights
Endorsement ALTA 14.3A/ALTA 14.3A-06 Future Advance – Reverse Mortgage with
Construction Lien Coverage/Form 111.11 Revolving Line of Credit (Lender)
And any “one’ of the following optional endorsements:
Endorsement Form 111.9 FNMA Balloon
Endorsement ALTA 6/Form 110.7 Variable
Endorsement Form 110.9 Adjustable
Endorsement ALTA 6.2/Form 110.8 Negative Amortization
There is a bunch of other legal mumbo jumbo in here I don’t understand that will require more google searching but I am concerned about the judgements against the previous owners. Thoughts?
Frank,
What would you say if I were buying a brand new home, from Toll Brothers in a planned community. Is it worth the risk to not purchase the owners title insurance ?
Charles
I am refinancing my mortgage, and have a title policy from the original loan from 8 years ago. Title costs are listed on the preliminary refi closing costs. The Lender said I could get estimates from local title companys and choose any company I want to go with. If I never refinanced, the original policy would still be in place as long as I owned the property, correct? When I refinance is the original policy invalid? Is it tied to the property? Or the financing? What is the value-add of a new policy? Should a re-fi title ins cost less than one for the original purchase? I live in Wisconsin.
Thanks for the article. The owner’s title insurance on my GFE and closing cost estimate is just $255. I think for that price, I should just get it. What do you think?
I am a title agent in my jurisdiction and deal with owners title insurance questions daily. You are right to focus attention on the optional nature of this purchase. Too few of my colleagues explain that because they focus on the money they stand to make during the sale. It is easy to do that since of all the fees on the HUD-1, an owner’s policy is something of actual value that a buyer can find useful down the road. Every other fee, from realtor commissions to origination charges to title charges are one time fees that are put in our pockets at closing and we all move on. Settlement is a whole heck of a lot easier when title insurance is involved since any defects of title can be worked out on the back end if the seller purchased a policy when he closed and the buyer purchases one in their transaction. I have had to hold up numerous closings until an issue was resolved that, had there been title insurance in effect, I would have just gotten an indemnity from the insurance company and proceeded to close for my buyer.
I want to point out something in your blog post that is not accurate. You state that an owner’s policy “covers what the Lender’s policy does not cover.” That is not true and is one of the biggest misconceptions about title insurance out there. The lender’s policy covers the lender only. You have no right to make a claim on it since you, the buyer, are not a named insured in a lender’s policy. In fact, the only time lender’s policies are ever clamed upon is in foreclosure. That is because a lender does not care about title defects so long as you are making your mortgage payment and has no incentive to help you fix any of them so long as you are paying your bills.
Other that the above, great post and, as a consumer and ethical title agent, thanks for bring it to the attention of your readers.
Thank you for your comment. What state are you in?
My words that you quoted were referring to a total title failure. As in the home was sold with fraud and needs to be taken back. Is it still wrong in that regard?
Also how often do you see the title insurer say “Opps sorry that isn’t covered, check the fine print”. Like that one much earlier commenter.
I just scheduled a closing in Virginia and received “welcome packet” from the settlement company. It explains almost nothing about what the owner’s title insurance is, what it covers, or even what the cost is. It certainly does NOT say it is optional.
It basically says we can choose between “Standard” and “Enhanced” and there is a form in the back with only those two choices. It goes on to say that “most clients” choose Enhanced and that if “you are uncertain” they recommed choosing Enhanced.
Horrible
Wonderful post and discussion – thanks. Here’s what I don’t understand: suppose a house goes through multiple sales over the years, with buyers and sellers getting title searches and paying title insurance companies at each step. Why is it not correct to assume that any title problems will have been solved up to the point of the current transaction? Maybe I don’t understand what title insurance really is…
great posts and info…am about to close on purchase in Waynesboro VA…got HUD document to review today. Proposed $1900 in owner’s title insurance! I seriously question in a subdivision that is less than 10 years old with only one owner of the property we are buying.
Thanks for a great blog, you are one of the rare sources of information on this subject. The WSJ has an article on it, but it’s pure fear-mongering and worst case scenarios with no facts ot statistics to back any of it up. http://online.wsj.com/article/SB10001424052748703712504576237070211101688.html Perhaps I can sell them UFO abduction insurance as well.
Anyway, I bought a house 6 months ago in MA, previous owners have owned it since at least 1930. I’m pretty sure I paid title insurance, was never given an option either way.
Well, I just got mailed a large packet from the my lawyer for a homeowners title policy. No explanation, nothing saying it’s optional, just places to sign. It has a total coverage of $65,000 spread over 4 categories with total deductibles of $15,000 and a cost of $1,292.50. So by my math, unless the odds of a total title failure are better than 39:1 this seems like a terrible purchase.
Given he wanted to charge me $150 to file a homestead form that has a $36 filing fee as part of my closing (I did it myself), I suspect he makes a good profit on these.
Wow, what an informative blog! I am a first time home buyer and have been questioning every signature page and fee put in front of me. I’m amazed at the number of errors and incomplete documents people expect you to take their word and sign. I agree with previous posters that the title company did not inform me that the insurance was optional;however, when I questioned the mortgage lender about the fee included on the GFE he told me that it was optional and encouraged me to do further research. I’m curious as to how people are able to conduct their own title searches. Is this something I can do on my own to determine if there have been past issues? Thanks for helping to educate us!
Title insurance to a certain degree is a rip-off for several reasons. There is a lack of competition to push down title insurance rates. Most of the title insurance rates are the same from company to company. I have heard the actual claims are very low.
It always amazed me as a settlement agent that we got to keep 70-80% of the premium, with only 20-30% going to the insurer. How many products out there provide a 70-80% commission? I think part of that amount should be going to the consumer.
I never knew anyone that was saved by having a title insurance policy. The only positive thing I saw was when there were title defects, sometimes title defects that the settlement agent that sold the title insurance should have cleared, the title insurer would allow us to write over the defects to make the closing happen.
I always recommend an Owner’s policy of title insurance wheny customers are purchasing a home or when they are placing new improvements on land and significantly increasing the value.
As far as a Leander’s policy being enough that is very bad advice. An Owner’s Polciy of Title Insurance is good forever. A Leander’s Policy does not have coverage in place after a loan is paid off.
There are many things that are not found in even the most accurate title search that can affect a title. Fraud in the chain if title, unknown heirs if a person in the chain of title coming forward to collect what belongs to them, incompetency of a person signing a deed, seller being in banruotcy at time of a foreclosure or in the military, mechanics liens which can come up for numerous reasons, burial ground or cemetery located in the property that was unknown at the time of purchase. None of those would be found during a title search.
As far as a buyer not being asked if they want title insurance, most states require they sign a form called “Availability of Title Insurance” which asks them if they want it. I always get that signed to protect myself also. If someone declines coverage and something comes up, they would surely say they asked for it.
As far as whether the title insurance company would pay a claim when they only made 20% of the premium, that is just foolish to say. Of course they would pay the claim if it is something that is named as being covered. They have to.
As far as whether someone should get it or not just because of the amount of claims that actually come up, I personally wouldn’t want to gamble on my most important investment that I won’t have any issue arise with my title. Most people wouldn’t. Title Insurance is a one time premium. When claims come up they can be huge. I do not think the premiums charged are out of line.
The insurance bureau moniters premiums verse loss also.
If you don’t care if your clients get owners title insurance you shouldn’t sell it.
Good thing deeds aren’t typed on iPhones with so called auto correct, haha
I forgot to mention that it is now required for an agent to show the commission split on the HUD 1 Settlement Statement.
The reason the agent makes more of the money is probably because when claims arise if the were something the agent could have prevented by being more accurate the insurance company pays the claim and then collects off of the agents insurance.
I have had three claims, none were a total loss. None were claims that were from anything the title search could have revealed. My customers were all covered. One was to the tuned of 36,000 for a mechanics lien. In that case I had the mechanics lien agent sign all appropriate forms and they flat out lied a out being notified of a mechanics lien by registered mail. He did that in several closings for the same builder and is not out of business. Another was regarding an easement agreement that was not disclosed and the third was an unknown heir. None were total policy loss claims but still enough that my clients thanked me for letting them know coverage was available to them also.
Cindy,
Your attitude seems to be “just get it because it’s a small price to pay for peace of mind on a large purchase.” That may be enough for some people, but others (myself included) were drawn to this blog because they want to actually understand where the premiums go and what they are actually getting for their money. While purchasing an owner’s title policy may ultimately be the “best” choice for both psychological and financial reasons, that does not necessarily mean that it is an actuarially sound investment for the buyer when weighing cost versus risk.
You wrote:
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This is an incredibly short-sighted view. As the name suggests, a title insurance company is an insurance company. Insurance companies are in the business of making money, which they sometimes accomplish by doing everything in their power to save money. That means that coverage disputes may arise that require additional litigation. It is not always as simple as brandishing a copy of your policy and telling them fix whatever ails you. That’s why it’s important for purchasers to know exactly what’s covered and what’s not (e.g., boundary disputes), and to ask questions about what they don’t understand. It is extremely difficult for purchasers to get that information when even the people pushing the insurance don’t seem to understand it.
You wrote:
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These are the conclusory points that the author of this blog is trying to move beyond, because they don’t advance the discussion. We know what title insurance companies and agents have to say about it; it’s posted in the FAQ section of many of their Web sites. They appeal to homebuyers’ worst fears – e.g., a former spouse who claims his/her name was forged on the deed, a long-lost heir, an improper foreclosure – but they duck the tougher questions:
– Why does such a high portion of the premium go to commission? I’ve heard attorneys speak vaguely about the “risks” associated with an agent issuing a policy (of course, they didn’t identify those risks). The more likely explanation is that it is just another built-in profit center, spread out across different lines on the HUD statement in a way that masks the actual cost of their services.
– If a claim arises because the title servicing professional missed something in the chain of title, why wouldn’t there be professional liability for negligence? Some of the coverage that title insurance policies provide appears to be nothing more than a safety valve to protect against title servicing professionals who don’t do their job properly the first time.
– Why do agents/closing attorneys/title companies claim that a lender’s policy provides no benefit to the owner? If a claim arises that threatens the buyer’s ownership of the property while there is still a large balance on the mortgage, doesn’t the lender have incentive to fight the claim to protect the mortgaged asset? Isn’t it reasonably likely that the buyer will default on the mortgage if he/she has to secure other housing? What would the lender foreclose on?
Perhaps there are simple answers to these questions, but nobody has taken the time to answer them. I am sure there are misconceptions in my post, and I would LOVE for someone to set me straight with some intelligent answers. “When claims come up they can be huge” and “I do not think the premiums charged are out of line” just don’t cut it.
You are right.
I had a closing company attorney that I respect say that she disagrees with my assessment of Title Insurance. But that is misguided. My am in no way saying not to get it (which was her take away), but instead that there is not enough information available to make a reasonable decision. Maybe I can get a video of her and better understand the stats.
I close on a house in Virginia in 16 days…I am using PENFED and their 5/5 ARM where they pay most of the closing costs…
They don’t pay owners Title insurance…the sellers are divorcing and said they can’t find their closing paperwork from 8 years ago and claim that the small law office that did their closing does not have a copy either…they said they are still looking but I have little faith they will find it…
So after reading through this whole thread I have two questions….
1) Is there anywhere that maintains copies of the HUD 1 or registers Title insurance when it is sold?
2) The owners Title insurance estimate for me is $2699…now my understanding is that all this is negotiable but is it? Since PENFED is paying most of the closing costs they have already done all the work since the lender requires it, and I am not paying for it…when I have gone on line to several different sites they have estimated about 1500 for the owners…..and Entitled estimated less than that…that….so finally the question…Can I tell the settlement company, thanks but no thanks..you can handle everything but the owners title insurance I am buying that from XXXXXX.
I am in the process of having a new home built by Pulte. It seems to me that if there is a problem with the Title, then they should be liable. I understand the need to buy an owner’s policy if I were to buy an existing home or a new one from a small builder, but why should I pay the same amount for a purchase from a large publicly traded company? If I by a brand new car from a Ford dealership, should I have to worry about the title? I expect that if Pulte doesn’t pay their subcontractor what they agreed, those two parties should and will resolve the dispute in court. If there is a dispute with ownership of the land, then wouldn’t that also involve Pulte who they bought it from?
Tom, one difference is that a car doesn’t also come with land. What if that new construction was build on an indian burial ground and they didn’t properly own it. And yes you are correct about how you likely could just sue to get it all cleared up. But the title ins in theory is covering the legal fees to do just that. Also in theory, having the insurance can allow you to go to closing immediately without having to first clear things up. So what you are buying is, in part, an insurance to pay legal fees and speed to close.
Many title companies, when they give examples of the usefulness they point to a deal that they see an issue and they are able to just slap down the policy and close tomorrow, versus months of tie up.
Thank you for starting this important conversation. I have been asking myself these same questions as I am about to close on my first home. The surgeon analogy someone else posted is spot on. I have a big problem with the whole concept of this insurance. I have two questions I wonder if anyone knows the answer to:
First, what about statute of limitations? At some point don’t liens and claims go stale, lessening the risks of long lost heirs or builders reappearing with valid claims?
Second, what about adverse possession? If the current owners have been using that driveway grandpa sold 30 years ago openly and notoriously for the last 20 years, wouldn’t that render any claim meritless?
I suppose then there is the issue of attorneys’ fees, but that is by no means a total loss. Does anyone know the answer to these as they may factor into my decision?
Thanks to everyone for the informative post and comments. I’m making my decision right now and leaning towards taking the risk of no owners insurance. I definitely won’t pay for the premium policy. This is like deciding to buy an extended warranty on your car, if you can afford to pay for the repairs yourself, the insurance rarely pays off. Insurance is a very profitable business.
I spent years as a title abstractor in Virginia and then more years working peripherally in real estate. After all that, I still have unanswered questions:
1. If a person never will fully pay down the mortgage, why buy insurance on the full purchase price and not a lesser amount?
2. If some defect pops up when I go to sell my property, there is an insurance policy on it – the lender’s. Sure, that doesn’t cover me, but it does prove that the property is insurable. So why wouldn’t that be enough to get the purchaser’s title company to insure the property?
3. If I own a condo, there is little or no chance of a weird easement or other land issue cropping up on my third-floor unit. So my only risk is a chain of title problem. I’m trained abstractor – If I’m personally comfortable with the chain of title, how big can the risk really be? Sure, fraud, I get it. But really? On a 20-year-old unit with two previous owners? Not likely.
4. Does my owner’s policy cover legal costs if a defect crops up when I sell? Don’t think so. Does it cover my damages if a sale is thwarted by the defect (like in Becky’s case)? Nope.
To the title people on this list: What am I missing?