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Updated over 1 year ago, 02/22/2023
Should I renew my title insurance?
Hi - my wife and I just changed deed ownership of our first STR property to an LLC we created. When we switched over we lost the title insurance we initially purchased when we closed on the home. If we repurchase title insurance, they are quoting us at $2,000...I really don't want to pay this but I am naive of the risks.
About our home:
- Built in 2017
- 1 previous owner
- No red flags as far as title issues when we closed
How important is having title insurance? Any advice is greatly appreciated!
Quote from @Staton Jobe:
Hi - my wife and I just changed deed ownership of our first STR property to an LLC we created. When we switched over we lost the title insurance we initially purchased when we closed on the home. If we repurchase title insurance, they are quoting us at $2,000...I really don't want to pay this but I am naive of the risks.
About our home:
- Built in 2017
- 1 previous owner
- No red flags as far as title issues when we closed
How important is having title insurance? Any advice is greatly appreciated!
That seems awfully high - do you recall what you paid in 2017? You may want to shop around with some other companies.
If you get the title insurance...you will never need it. If you dont get it, you will need it.
- Russell Brazil
- [email protected]
- (301) 893-4635
- Podcast Guest on Show #192
We bought the home last year for $735k
Quote from @Staton Jobe:
We bought the home last year for $735k
Sorry, I meant what did you pay for title insurance last time?
In any event, have you tried to get a few other quotes?
Personally, I would probably bite the bullet and get the insurance. The risk is probably quite low, but this has the potential to completely wipe you out if something goes sideways.
We paid ~$1500 in title insurance last time but I’m told it was discounted at the time since it was looped in with all other things closing costs.
Very frustrating that we lose the insurance just by transferring the home to an LLC (that we own)
Quote from @Staton Jobe:
Hi - my wife and I just changed deed ownership of our first STR property to an LLC we created. When we switched over we lost the title insurance we initially purchased when we closed on the home. If we repurchase title insurance, they are quoting us at $2,000...I really don't want to pay this but I am naive of the risks.
About our home:
- Built in 2017
- 1 previous owner
- No red flags as far as title issues when we closed
How important is having title insurance? Any advice is greatly appreciated!
Why do you think the LLC is not an Insured? Read the definition of Insured in the Definition section of the policy which should be in the Condition portion before answering.
Quote from @Staton Jobe:
When we switched over we lost the title insurance we initially purchased when we closed on the home.
Ask how much the title company charges for a tract search, including judgment searches on your names and on the LLC. Get one done, and then you can determine risks. You may even want a different, unaffiliated company to do the search (different set of eyes and all that).
Remember, the title company only protects you from what others did BEFORE you took title. It never insures for what you did to the title while you owned it, or for what your affiliates (your LLC, which you control) did/do to the title. Title insurance does NOT function like car or home insurance: It does not protect you from yourself. Therefore, I question your statement about how you "lost" the title insurance. Anything you or your LLC did to affect title will NEVER be covered by your title insurance (or the LLC's title insurance for that matter).
From my current contract:
Continuation of Coverage:
a. The is policy ensures you forever, even after you no longer have Title. You cannot assign this policy to anyone else.
b. This policy also ensures:
-Anyone who inherits your title b/c of your death
-Your spouse who receives your title b/c of dissolution of marriage
-the trustee or successor trustee of your trust or any estate planning entity created for you to whom or to which you transfer title after the policy date
-the benefeciaries of your trust upon your death
-Anyone who receives your title by transfer effective on your death as authorized by law
Quote from @Peter Walther:
Quote from @Staton Jobe:
Hi - my wife and I just changed deed ownership of our first STR property to an LLC we created. When we switched over we lost the title insurance we initially purchased when we closed on the home. If we repurchase title insurance, they are quoting us at $2,000...I really don't want to pay this but I am naive of the risks.
About our home:
- Built in 2017
- 1 previous owner
- No red flags as far as title issues when we closed
How important is having title insurance? Any advice is greatly appreciated!
Why do you think the LLC is not an Insured? Read the definition of Insured in the Definition section of the policy which should be in the Condition portion before answering.
You sold the property to the LLC it is not a family transfer.
Did you check if you can get hazard insurance for the same price? Now is commercial.
#Asset #protection false promises. No one explains all the risks. Hopefully you didn't pay for this.
Are you recommending hazard insurance versus title insurance? We have not purchased anything yet.
We did a Gift of Deed to transfer the title into our LLC
Generally speaking this requires a review of the Definitions section of the policy. Was the instrument conveying to the LLC a no consideration deed? Who is the Grantor in the deed to the LLC? Who are the Members of the LLC? Compare to definition of the "Insured" in the policy.
If the "Insured" still owns the property, coverage continues.
- Tom Gimer
Could be pricey, definitely shop around... That said, I wouldn't forgo title insurance ever. You'll most likely never need it, but if you ever do - that would have been the cheapest $2,000 you ever spent.
Quote from @Staton Jobe:
From my current contract:
Continuation of Coverage:
a. The is policy ensures you forever, even after you no longer have Title. You cannot assign this policy to anyone else.
b. This policy also ensures:
-Anyone who inherits your title b/c of your death
-Your spouse who receives your title b/c of dissolution of marriage
-the trustee or successor trustee of your trust or any estate planning entity created for you to whom or to which you transfer title after the policy date
-the benefeciaries of your trust upon your death
-Anyone who receives your title by transfer effective on your death as authorized by law
I've never seen that language before so it may be either from a ALTA policy form created after I retired in 2019 or possibly from a non-ALTA approved policy. There may be a Form No. on the front jacket of the policy possibly in the lower left corner that might identify it. The language looks somewhat similar to what was comically know as a plain language form policy but not exactly the same.
I could see your LLC as possibly fitting into the "the trustee or successor trustee of your trust or any estate planning entity created for you to whom or to which you transfer title after the policy date" definition depending on what you're trying to accomplish with the LLC, but I wouldn't bet the farm on it.
One last thought, is the property not in the US? Possibly Canada, because I don't have any experience with Canadian title policies.
Yes, it's a ALTA Homeowners Policy of Title Insurance...I have no idea what that means...again, naive...
And yes, the property is in the US (Virginia)
Quote from @Staton Jobe:
Yes, it's a ALTA Homeowners Policy of Title Insurance...I have no idea what that means...again, naive...
And yes, the property is in the US (Virginia)
Ahhh... it's a Homeowners Policy -- you generally have to be a Natural Person to be the insured (or an insured who takes title by operation of law such as death rather than by deed).
Getting the underwriter to consider the LLC an estate planning entity (as Peter suggested) may be a stretch but there may be another angle and the savings would be worth the effort. I would contact the underwriter and see if the policy can be assigned to the wholly-owned LLC by endorsement along with payment of a special risk premium (this would be modest compared to a new policy). There is some information online about this.
- Tom Gimer
@Staton Jobe No.
Quote from @Staton Jobe:
Are you recommending hazard insurance versus title insurance? We have not purchased anything yet.
We did a Gift of Deed to transfer the title into our LLC
You cannot do a gift deed to a LLC. This is a sale deed so title may already have a problem. You cannot give a gift of $735000 to a LLC without it being taxed. Maximum gift for 2022 allowed is $22000.
You have no hazard or fire insurance at all? Can't be correct. The hazard insurance when you closed was in your personal name now it is a commercial policy as the title is an LLC. Fire/hazard insurance for a LLC vesting is more expensive than held in a Living Trust or your names.
@Caroline Gerardo A Deed of Gift is unique to Virginia. OP is talking about a local transfer tax exemption... not fed.
D. No recordation tax shall be required for the recordation of any deed of gift between a grantor or grantors and a grantee or grantees when no consideration has passed between the parties. Such deed shall state therein that it is a deed of gift.
I'm not saying they did this all correctly, only that the transfer may have been tax-exempt as far as the clerk is concerned under 58.1-811.
- Tom Gimer
Quote from @Tom Gimer:
Quote from @Staton Jobe:
Yes, it's a ALTA Homeowners Policy of Title Insurance...I have no idea what that means...again, naive...
And yes, the property is in the US (Virginia)
Ahhh... it's a Homeowners Policy -- you generally have to be a Natural Person to be the insured (or an insured who takes title by operation of law such as death rather than by deed).
Getting the underwriter to consider the LLC an estate planning entity (as Peter suggested) may be a stretch but there may be another angle and the savings would be worth the effort. I would contact the underwriter and see if the policy can be assigned to the wholly-owned LLC by endorsement along with payment of a special risk premium (this would be modest compared to a new policy). There is some information online about this.
I agree getting an endorsement would be the best way to confirm coverage continues, but I was looking at the portion of the insured definition that reads "or any estate planning entity created for you" which I believe must refer to a non-natural person i.e., a legally created creature capable of holding title. Since prior policy definitions specifically included LLCs where the initial insureds were the only Members, I doubt the intention would have been to exclude them in the Homeowner's version but I'm not aware of any cases were a Court construed the meaning of the phrase.
The language quoted by Staton doesn't track the language in the Homeowner's policies I'm familiar with.
Quote from @Caroline Gerardo:
Quote from @Staton Jobe:
Are you recommending hazard insurance versus title insurance? We have not purchased anything yet.
We did a Gift of Deed to transfer the title into our LLC
You cannot do a gift deed to a LLC. This is a sale deed so title may already have a problem. You cannot give a gift of $735000 to a LLC without it being taxed. Maximum gift for 2022 allowed is $22000.
You have no hazard or fire insurance at all? Can't be correct. The hazard insurance when you closed was in your personal name now it is a commercial policy as the title is an LLC. Fire/hazard insurance for a LLC vesting is more expensive than held in a Living Trust or your names.
I'm certainly not a tax expert but in my opinion since a single member LLC is considered a disregarded entity for Federal tax reporting purposes, I also believe the conveyance to the same LLC would not be considered a taxable event. I'd of course check with my tax advisor to be sure.
A real person owns property. They transfer to an entity that they own shares. He cannot do a family transfer to an entity and thus the title insurance essentially dies with him on that transfer date.
A deed of gift is a different thing. I'm talking about the sale of the property to an entity. $735000 value far exceeds the limit.
All title policies are regulated and the similar cost from company to company. Shopping won't help, but ask for short term rate and provide all the information you set up on the LLC. When you provide the Statement of Information to the Title Officer if you get sued the plaintiff can subpoena those records. Having a LLC to protect you from lawsuits has to be closely watched by a CPA and attorney or someone will pierce the veil.
@Tom Gimer Virginia does not levy a state gift tax on transfer and we don't know what type of entity he set up so transfer tax to county/state might have been nominal. I'm talking about paying the Federal Gift Tax of $735000- 22000 if recorded in 2023
The LLC is not a Trustee of a Living Trust. @Peter Walther so hard to get Title Officer to accept the risk of making an exception. Title companies have staff legal that protect the company from paying out on errors, and making exceptions starts a rule to follow for everyone else.
I assume there is no loan as they don't mention it.
Fire or hazard insurance is another issue. Call your insurance agent as now you need to change that to line up or if you have a fire, claim, problem the policy does not match the property title.
Quote from @Caroline Gerardo:
A real person owns property. They transfer to an entity that they own shares. He cannot do a family transfer to an entity and thus the title insurance essentially dies with him on that transfer date.
A deed of gift is a different thing. I'm talking about the sale of the property to an entity. $735000 value far exceeds the limit.
All title policies are regulated and the similar cost from company to company. Shopping won't help, but ask for short term rate and provide all the information you set up on the LLC. When you provide the Statement of Information to the Title Officer if you get sued the plaintiff can subpoena those records. Having a LLC to protect you from lawsuits has to be closely watched by a CPA and attorney or someone will pierce the veil.
@Tom Gimer Virginia does not levy a state gift tax on transfer and we don't know what type of entity he set up so transfer tax to county/state might have been nominal. I'm talking about paying the Federal Gift Tax of $735000- 22000 if recorded in 2023
The LLC is not a Trustee of a Living Trust. @Peter Walther so hard to get Title Officer to accept the risk of making an exception. Title companies have staff legal that protect the company from paying out on errors, and making exceptions starts a rule to follow for everyone else.
I assume there is no loan as they don't mention it.
Fire or hazard insurance is another issue. Call your insurance agent as now you need to change that to line up or if you have a fire, claim, problem the policy does not match the property title.
I'm well aware title insurers have staff to protect it from paying out on uncovered claims since I was part of that staff for about thirty years. If the insured was to ask the agent for the endorsement, I suspect the agent would check with the insurer's underwriters and ask for authority to issue the endorsement, though I've seen agents issue questionable endorsement without doing so. The underwriters might in turn might ask the claims department for input into the decision. If as I mentioned to Tom, if the insurer believes the definition of Insured of "any estate planning entity created for you" includes a single member LLC, then the insurer might authorize the issuance of the endorsement.
I'm not sure what you mean by paying out on errors, since that what title insurers do, pay out on covered errors whether the error is in the search, exam or parts of the closing.
As I previously wrote:
I'm certainly not a tax expert but in my opinion since a single member LLC is considered a disregarded entity for Federal tax reporting purposes, I believe the conveyance to the same LLC would not be considered a taxable event. I'd of course check with my tax advisor to be sure.
@Peter Walther we don't know if this is single member entity. Also this was not done for estate purposes, it was done for asset protection as he stated he was worried about being sued for Short Term Rental use.
@Caroline Gerardo - sorry for the confusion. Yes, I have hazard/fire and have already adjusted it for the LLC. And yes, it is a single member LLC
So what I take away is that I should talk to the insurer and see if they would endorse my LLC as "any estate planning entity created for (me)"...?
Thanks for all the input
If you can afford to replace it.....dont insure it
if you cant afford to replace it.....insure it