All Forum Posts by: Nana Sefa

Title, insurance and surveys are two of the most important tools you can get when purchasing a property. Not to mention it will also help you sell the property if you intend to flip or sell in the future.

You're right of course that some protection extends past the 6 weeks of ownership, and I was clumsy or mistaken describing it otherwise. 

Nevertheless that anecdote shows risk is nonzero, but nothing further. The risks are lower than if I continued to own the property myself. The rational thing to do is to compare the risk and risk premium and make a decision to self-insure or not based on my risk tolerance, it's an obligation of rationality. I do not think you are disagreeing with that. 

Here is what confuses me about the one-time premium. If I have a 30yr mortgage the lender does not require title insurance updated every 5 years. But if I rate/term refi with the same lender after 5 years, title insurance is required to be paid again. Why? I get the old loan is paid off and the insurance goes with it but why can't it just be transferred to the new nearly-identical loan. It doesn't make sense to me. 

Here are a couple more examples of when the existence of a loan policy won't help the owner... encroachments, boundary issues, forced removal of improvements due to building permit and code issues, title issues that would not affect the lender's lien... or at least would most likely not cause the lender to take action which might help the uninsured owner.

And the reason another loan policy is required in connection with a refinance (in addition to the obvious reason -- there is a new insured) is that the period of time in which a defect might arise has just been extended to the date of the new policy. After all, the purpose of the new policy is to insure the lender that its new lien is in first (typically) position. No new policy = no new money loaned.

@Jay Hinrichs Yes exactly, I think this is a rational way to do it in many cases. 

@Rob K. I'll respond to this since I hear the undertones towards what I have just been posting about. Obviously an anecdote about a single case where someone would have benefitted from purchasing insurance is not evidence supporting that insurance should 'always be purchased'. The fact that the risk is nonzero does not mean the risk is high enough to pay any price for insurance. Title risk is real, it's just unlikely. Calculate the risk and the risk premium and make a rational decision, it's investing 101. 

That's another area where the title insurance payment structure does not make sense, on a refi. On a refinance you have to get the title insurance 're-issued'. Basically you have to pay again just to change the lender. If you change the lender on your hazard insurance you do not have to buy a whole new policy. This does not make sense to me. If you have any light to shed on that Rob I'm open to hearing. 

Most other developed economies like Japan and most of Europe have gov't backed title, a few other countries have a hybrid structure, and it is really only the US and Canada that are all about private title. We are a bit of an outlier as a country. 

I think the private title industry made sense for a US that is more prone to litigation and was forced to keep private records. As we transition to electronic records and the chance of title issues from paper records fades into the decades I hope the heat from reform efforts breaks through to the regulations to create a system that is more optimal. 

 

I'm in the title business and I have a story quite appropriate for this thread. ~6 years ago I purchased a property (seller finance) in WV using an attorney (not a title company) and was never even offered title insurance. (Neither was the seller/lender.) You can probably guess how this story unfolds.

Sure enough 4 years later out of the wordwork comes a lender from 2 transactions back (20+ years) claiming a HELOC was never paid/released and in fact continued to be drawn from by the prior owner/borrower. Was a ~$20k line now ~$50k owed.

Long story short I was at least able to defend myself, invoke the general warranty in my deed, add a claim against the attorney for malpractice... and the malpractice carrier paid the item days prior to the scheduled foreclosure.

To those who like to gamble and as I say to all buyers who decline owners coverage... Good luck!

Relying upon the existence of a lender's policy to protect you as owner when the simultaneous issue rate for the owners policy is typically pennies on the dollar? That's not particularly smart, IMO.

Especially when, as @Peter Walther mentioned above, the lender is not likely to do anything on a performing loan and further the title defect may not affect lien priority. On the last comment let's say the title company missed an easement which effectively prevents the intended use of the land. You're SOL; the lender is secured. Or perhaps title missed a $5k water lien. Nobody is going to foreclose a water lien so guess who has to pay it? I could come up with many, many examples such as these where without owners coverage you're screwed.

 I bought a mortgage that did not have title insurance and did not realize the mortgage was recorded before the deed. Borrower was in default but had to go through quiet title process since the mortgage was not valid since it was recorded prior. What a pain in the ASHHH that was and the time we lost. 

We did have a loan in Lousiana that had title insurance and the mortgage was recorded in the wrong parish. The borrower had taken out a second mortgage that was in first since ours was recorded in wrong parish. Title insurance was able to get it fixed but took a year.

The doozy of doozies is we acquired a loan (with insurance) where there was a first and second. The loan was a refinance of the first. They also did get a subordination agreement from the second lien holder but it was executed by their power of attorney. Borrower filed Ch 7 and liquidated the property. The second got wiped BUT filed a lawsuit claiming they did not know the power of attorney signed the subordination agreement and since the loan was dated after theirs they feel they are in first (even though in this jurisdiction a subordination agreement is not needed and the refinance of the first is automatically subordinated). Title insurance is covering the entire bill (still ongoing) - house is sold and all proceeds sitting in escrow. Been almost 2 years and when I spoke to my attorney he said legal well over $100k on this. Lets just say Glad I have insurance. 

@Nana Sefa Just this past year I had an issue where I had a property that I did NOT get title insurance on it and something major came up with a right of way from back around 1874 and the buyers bank held off on the closing until proof of the right of way could be found.

Fortunately for me my lending bank had title insurance which covered it because it took over 75 hours of research and digging through files in the basement of the county courthouse going back almost 150 years to turn up actual proof that the right of way existed which would have cost me about $6000.

Needless to say I’ve learned my lesson and am now getting title insurance on all of my properties.

I always say if you get owners title insurance, you will never use it. If you do not get it, you will have a situation where you need it.

I have actually made a claim on owners title insurance before. I purchased a property that was a foreclosure. Years later I was refinancing and they found a title defect. Property had not been properly foreclosed on, so they had to reforeeclose on it like a decade later. Didnt cost me a dime, just time pushing my refinance back.

@Russell Brazil