Buying without Title Insurance... kind of

[Delin W.]

I am purchasing a condo in a complex where I already own one. The seller is losing money on the deal and is not willing to pay for anything, including the $2,000 "Owner's Policy" from the title company. This is generally paid for by the Seller, but it now falls to me.

I am planning on purchasing the "Lender's Policy", which is required here, and normally paid for by the buyer. It runs about $1,500 and my understanding is that it insures the lender's portion, ie 75% of the purchase price.

So I'm trying to figure out if the "Owner's Policy" is worth the $2,000 price tag. I thought the Owner's Policy only covered the buyer's portion of the home, ie 25%, so I am confused as to why it is more expensive.

I also don't understand why there are two separate policies, presumably when there is only one title search performed. What is driving the cost?

And why didn't my title company tell me that the Owner's Policy was optional? They had a hard time admitting this, and finally came up with a waiver that I will need to sign if I chose to decline the Owner's Policy. This title company is a reputable one, and they appear to be simply pushing the industry standard -- ie promoting fear -- when it comes to the Owner's Policy.

BTW, nothing came up on my other condo's title search, so there doesn't appear to be any historic issues with land ownership. The seller bought directly from the developer, so I think the only risk is a potential title issue related to him. If that is the case, wouldn't/shouldn't the title company find that while doing the search for the Lender's Policy?

Can anyone shed any light on this situation?

Thanks in advance!!

[David J.]

State law sets policy premiums. You are crazy to buy without a title policy in my opinion.

Owners policy protects owner from title claims up to purchase price. Premium is calculated based on purchase price.

Lender policy protects lender from loss of collateral due to title claims up to loan amount. Premium is calculated based on loan amount.

So in the case of a total loss, title company pays you for lost title and lender for lost collateral. You get the purchase price back and the lender gets the outstanding loan amount back.

Buying a lender policy only with a total loss would result in the lender being repaid and you getting nothing. If you are ok with walking away from your down payment and any principle pay down (read equity) incurred on the note them go ahead and take the risk. In addition, if something comes up you are stuck with the legal fees to fight a title claim because you didn't buy the policy.

You may think the risk is minimal but things happen all the time. I have closed 30 houses without an issue and two weeks ago my title company missed a conveyance in the deed search. Without insurance I would be out the 40k purchase price. I can imagine having that issue with a 200k house. If you are ping to play with real estate at least protect yourself from other peoples errors.