We had another settlement on new construction yesterday and the title attorney was relating a story to us about a couple earlier in the day who had settled. Everything was done, checks disbursed, and then the buyer said he did not want the owner's title insurance. Their Realtor said, "Oh you don't need that, it's new construction." The attorney had to re-do all of the paperwork and take off the $300 for the title insurance. That $300 may sound like a nice savings, but you have to think about what it protects you from. The house on this particular location is new, however the land has been there from the beginning of time. Every time that piece of property changes hands, paperwork has to be filed and recorded properly. Every single owner has to have signed those papers. If somewhere along the line one of the owners did not sign off their property rights and one of their HEIRS discovers this, they can lay claim to YOUR HOUSE.
Recently we had a settlement where about 50 years ago, one of the owners did not sign paperwork and he has since died. The title attorney tried to find heirs and could not find any, but the fact that there was a break in the chain somewhere means the title has a defect that will stay with it. If an heir does appear somewhere along the line, my client is PROTECTED by his title insurance. The title company insured the property knowing there was a defect and you bet we recommended that he have title insurance. This same client just bought an investment property last week and reminded us of the story of his personal home and said YES when asked if he wanted title insurance on this property.
Do title companies get many of these claims? No. Is there a high risk that it will happen to you? No. As with all insurances, obviously they make more money on premiums than they spend on payouts but these policies give us peace of mind. If there is a claim against your home or your clients home that you told them not to get title insurance for, then it is a very big deal and you'll wish you had recommended that your clients purchase that owner's title insurance. The mortgage company requires title insurance to protect themselves for a reason.
It's a small price to pay to be able to sleep at night. Realtors - if you tell your client you are "saving them money!" like a hero and something happens later on with their title, you just bought the rights to pay off that claim.
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