Should I renew my title insurance?

[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!

[Tom Gimer]

Quote from @Peter Walther:

Quote from @Tom Gimer:

Quote from @Staton Jobe:

@Peter Walther

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.

I pulled it up online and that language seems to be from Stewart Title's Homeowner's policy from early 2000s to present.

Lesson to be learned... don't buy an enhanced policy without first reviewing the policy definitions if you intend to eventually transfer to your LLC.

An "estate planning entity" to me is a trust. An LLC membership interest does not transfer upon death absent some other agreement.

[Peter Walther]

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Tom Gimer:

Quote from @Staton Jobe:

@Peter Walther

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.

I pulled it up online and that language seems to be from Stewart Title's Homeowner's policy from early 2000s to present.

Lesson to be learned... don't buy an enhanced policy without first reviewing the policy definitions if you intend to eventually transfer to your LLC.

An "estate planning entity" to me is a trust. An LLC membership interest does not transfer upon death absent some other agreement.

 The problem of course is ambiguity is construed against the drafter.  If the ALTA meant Trusts, they could have limited it to Trusts by writing it that way.

[Tom Gimer]

Quote from @Peter Walther:

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Tom Gimer:

Quote from @Staton Jobe:

@Peter Walther

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.

I pulled it up online and that language seems to be from Stewart Title's Homeowner's policy from early 2000s to present.

Lesson to be learned... don't buy an enhanced policy without first reviewing the policy definitions if you intend to eventually transfer to your LLC.

An "estate planning entity" to me is a trust. An LLC membership interest does not transfer upon death absent some other agreement.

 The problem of course is ambiguity is construed against the drafter.  If the ALTA meant Trusts, they could have limited it to Trusts by writing it that way.

I agree but would you like to have to litigate in order to secure coverage? Enhanced policies are for homeowners only... not investors. They say so right on their face. An LLC cannot be a homeowner.

[Staton Jobe]

Yes, lesson learned for this novice investor…I think I'm going to go ahead and buy the new policy for my LLC…I'll feel better about it once I start getting some cash flow from this property