Why Title Insurance?

By
Real Estate Agent with Long & Foster Real Estate, Inc.
https://activerain.com/droplet/4NQc

Why Title Insurance?


It's understandable when a home buyer expresses outrage at the requirement and cost for title insurance because he probably has no idea of what it does for him or even why he's required to pay for it. How would he, unless his real estate agent, lender or closing agent explains it well - which rarely happens, due to time constraints and the mountain of required paperwork at every step of any real estate transaction.

Some real estate agents (and probably some lenders or closing agents) don't explain it to their clients because they just don't understand it themselves. I was reminded of that this morning when I read the featured post, Title Insurance is a Scam in Massachusetts.

Ignorance is NOT bliss, especially when it comes to elements of our profession that we should be able to accurately explain (if not endorse) to our clients. Title insurance is one of these.

Experience teaches me that title insurance is no scam and, in fact, it's a good investment. Where else can you buy insurance that's in effect for up to 30 years, with only one up-front premium? And the fact is that title insurance is required by mortgage lenders as a condition of obtaining a home loan.

 

Why home buyers purchase lender's title insurance:


Lenders have a vested interest in any collateral used to secure a loan, and they have every right to require insurance for the title of a home - i.e., protection against title fraud, error, or mishandling, among other things. As a condition for lending their money, they require borrowers to purchase title insurance for the same reason they require an appraisal, a credit report, and property insurance naming the lender as an insured party: to protect their investment. Failing to do so would be negligence on the lender's part.

Maryland borrowers have the option to purchase the same title protection as lenders at additional cost, and the amount paid at closing is a one-time premium with no additional payments during the life of the loan. 

Buyers purchase lender's title insurance for Peace of Mind - the same reason they purchase any insurance.

 

Why purchase owner's title insurance? 

 

Lender's title insurance protects the lender in the event of a title issue. It does not protect the borrower, however, who may feel the effects of a title issue long before it impacts the lender. Let me share a few examples of situations when my own clients benefited from owner's title insurance:

Property description - Early in my career, a discrepancy was discovered in the property description for a townhouse community in my market. Lenders were protected during the years of litigation, but homeowners in this community who had buyer's title insurance were protected. Only they could sell their homes before the matter was resolved. Since then, I have recommended optional buyer's title insurance to all of my clients.

Encroachment - Then there was the case of two condo owners who came to agreement about swapping their garages. Everyone was happy with the arrangement until one was ready to sell, and an alert appraiser noticed that the condo owner did not have possession of the garage deeded with that unit. Returning possession of the garages to the two deeded owners became a condition of my buyer's new lender, and closing would not have taken place at the scheduled date and time if there had not been owner's title insurance in effect.  

Unreleased liens - In two other cases involving my clients, one a buyer and the other a seller, previous construction liens reared their ugly heads. These liens dated back to construction of the home and apparently had been overlooked in previous title searches. Many hours were required to track down the the lien holder (no longer in business) and for previous title companies to pull their old files out of storage to review whether the liens had been paid. If there been no owner's title insurance, these two cases would not have closed on time while the legal beagles did what they do to address these situations.

As we've seen throughout the foreclosure crisis, lenders have plenty of time to wait... and wait and wait and wait... while home sellers are denied short sale approvals time and again and foreclosures are postponed for months and years. Would any of us want to wait for a title issue to impact their lender significantly enough to motivate a title insurance claim and then hope their claim coincidentally saves our butts? I'm very confident that lender's title insurance would not have expedited any of the transactions described above - but owner's title insurance did.

 

Who determines the cost of title insurance?

 

In Maryland, insurance rates are established by the state and the cost of title insurance is not negotiable, so it doesn't matter which closing agent a borrower selects. A percentage of the one-time premium is paid to the title agent as compensation for preparing the required policy. 

The cost of title insurance may vary from one state to the next, but insuring the title of one's home simply makes sense no matter where your property is located. You may never need title insurance, but won't you be glad to have it if you do find yourself with a title issue?

 

Guaranteed,... that premium is less than the cost of hiring an attorney or settling with another party in a lawsuit or even a minor title discrepancy. I wouldn't buy a home without it!

 

 

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This infoMargaret Wodarmation was provided to you by Margaret Woda, an Associate Broker with Long & Foster Real Estate in Crofton Maryland. Contact Margaret today for general real estate information or to learn how she can help you buy or sell a home in Annapolis, Bowie, Crofton, Davidsonville, Gambrills, and Odenton. 

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Rainer
355,180
Nina Rogoff
RE/MAX Executive Realty - Medfield, MA
Sells Real Estate!

Margaret, this is a great post and very informative. I think you're right; most people don't understand what title insurance is for. For such a major investment as a home, it certainly is worth the relatively slight expense.

Jan 11, 2015 12:24 PM #33
Rainmaker
2,937,566
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Since lenders insist on title insurance (and it's a good idea to have both lender and buyer coverage), I think it's one of those closing cost items that lenders should spend more time discussing and explaining to their clients. (But we as agents can be better at this too.)

Jan 11, 2015 07:57 PM #34
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Judy C Jennings - Perhaps filing a complaint with the local Bar Association, the State Attorney's office, or even the title insurance company that underwrites this attorney's title policies would be in order. 

John Mosier - Title insurance "producers" are required to take pre-licensing education and pass a state exam in Maryland. The industry is highly regulated. That being said, the cost of a title exam may vary and some title insurance providers charge a variety of other fees such as document prep, notary, etc. 

Dinah BuPane - Thank you, feel free to borrow them.  

Praful Thakkar - Having worked in the title insurance industry many years ago, I know just enough to be dangerous. That post raised a lot of red flags (and questions) for me. It also provided a topic for me to write about. 

Margaret Rome, Baltimore Maryland - Yes, there's a good chance I'll come, Margaret, but I reserve the right to "no-show" if my husband and I are wiped out after a late night at the Governor's Inaugural Gala on January 21.

I just found your post about the meet-up, so now I have all the details. Thanks for mentioning it in your comment, because I haven't been on AR in a while and didn't know about it.

Jan 11, 2015 09:18 PM #35
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Joan Whitebook - Nice to see you again. 'Haven't been on AR in a while and it feels like old home week to see comments from friends that go back 6-7 years. Nina Rogoff - Thank you for the compliment. I find that most people see title insurance as an unknown, and they're surprised when they hear about real life examples from their own community. 

Nina Hollander - Agree! There's so much paperwork, it's easy to gloss over important topics like this with our clients.

Jan 11, 2015 09:35 PM #36
Rainmaker
691,327
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Hi Margaret, Those that think that Title Insurance is a scam haven't tried to buy property in another country that doesn't have good title insurers.

Maintenance of a title plant is a very valuable "asset" to the real estate community. Whether the title company ever pays a claim or not is not the issue.

Bill Roberts

Jan 11, 2015 11:52 PM #37
Rainmaker
249,570
Scott Guay
Berkshire Hathaway Home Services PenFed Realty - Ocean Pines, MD
Associate Broker. Ocean City and Ocean Pines MD

Don't buy a home without both lender and owners title insurance.

Jan 11, 2015 11:58 PM #38
Rainmaker
48,217
Adele Langdon
Los Angeles, CA
Exclusive Realty Inc.

Thank you Margaret.... what a great article and a reminder of how inportant this subject is.  I also will want to bookmark it.

Jan 12, 2015 12:01 AM #39
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Margaret, title insurance is necessary to protect the buyer in the event there are issues down the road. Hidden or overlooked in that other post was the fact that BOTH the lender and the lawyer were taking funds for title insurance, even though only one title company would be paying in the event of a claim.  That was the scam

Jan 12, 2015 12:35 AM #40
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Bill Roberts - Thank you for your comment. I agree!  

Scott Guay - Exactly! 

Adele Langdon - Feel free to borrow my stories when you explain title insurance to buyers. They make the point that title insurance can help a home owner in unexpected ways. 

Ed Silva - That post did get my wheels turning on the topic of title insurance, and it pulled me back into AR after a long absence. It wasn't my intention to debate the merits of another Activerainer's post. 

 

Jan 12, 2015 01:40 AM #41
Rainer
100,361
CHARLENE PERRY, CLTP
Key Title Corporation - Perry Hall, MD
Insuring the Past to Protect Your Future

Margaret

You did a great job explaining title insurance and the need for buyers to purchase it.  It is particularly important now for all agents to be aware of the importance of title insurance so that they can properly educate their buyers.  New disclosures will mention title insurance as an "optional" fee to consumers beginning in August, 2015.  I have no doubt that unless consumers are made aware of the imporatance of title insurance they will be mislead by the new disclosures into a false sense of security believing that title insurance is an "option". 

 

Thank you for the imformative post.

Charlene Perry 

Certified Land Title Professional

Jan 12, 2015 02:10 AM #42
Rainmaker
2,471,232
Rebecca Gaujot, Realtor®
Vision Quest Realty - Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

Hi Margaret, ecellent post and congrats on the feature. This is so important and something buyers should always get when buying property.

Jan 12, 2015 03:52 AM #43
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

CHARLENE PERRY - I noticed that you're a "Certified Land Title Professional" so your compliment is really appreciated. I really think it would be helpful for people in your position to share stories like my experiences with agents because those stories register with consumers a lot better than facts. 

Rebecca Gaujot, the GO TO REALTOR - Thank you, Rebecca!

Jan 13, 2015 04:55 AM #44
Rainer
100,361
CHARLENE PERRY, CLTP
Key Title Corporation - Perry Hall, MD
Insuring the Past to Protect Your Future

Thank you for the mention Margaret. I am working now on a presentation for Realtors which explains the "new" Consumer Disclosure form  and gives them the tools they need to be able to explain to their borrowers why title insurance is not "optional".  An educated consumer is our best ally.

Jan 13, 2015 05:07 AM #45
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William Johnson
RE/MAX Associates - La Jolla, CA
San Diego Real Estate Voice, GRI CRS e-Pro CDPE

Superb Post Margaret. This is the kind of information that is timeless and so useful in a blog!

Jan 19, 2015 02:02 PM #46
Rainmaker
2,725,258
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

This is one of those things that you don't really understand until you're older. Nice post overall though!

Jan 19, 2015 02:15 PM #47
Rainmaker
1,826,032
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Margaret - this is a much needed explanation.  But if it is just explained as an extra expense the new owner just thinks it is another way to get money.  Examples, such as old claims and unreleased liens are good reason for homeowners to have their part as well.

Jan 19, 2015 08:04 PM #48
Rainmaker
130,096
Carolyn Shipp
Source 1 Real Estate - Mineral Wells, TX
Mineral Wells Texas Real Estate

I come from a background in title insurance and have seen people lose properties because they did not have a title search completed prior to the purchase of a property.  

One instance was in Florida.  The gentleman came to our title company looking for help because he said the owner told him to get off his land, the owner was a snowbird.  The "new" owner had placed a mobile home on the property.  

So that this is not a long story, we did a title search for him and found out that the deed he had received from the "owner" was in fact fraudulent.  The person he had bought it from wasn't an owner and had never been.  Basically, it boiled down to "it was too good to be true."  He had fallen prey to a land scam.  He did not have any representation, he did not have the closing at a title company, it was a "FSBO."  Everything that should have taken place in a transaction, didn't. 

It was a very hard lesson for him and he was very upset, as I can understand, but had he completed a simple title search, which back then, on the amount he was paying for the land would have been the least of his expenses, he would not have lost everything he had put onto the property since then.  Although he could take his mobile home with him, he couldn't take the land or the other structures he had built.

 

Feb 05, 2015 11:04 PM #49
Rainer
508,670
S. Leanne Paynter ☼ Broward County, FL
United Realty Group, Inc. - Davie, FL
Davie, Plantation, Cooper City & Weston Specialist

This is a very good post on the importance of title insurance and why every homebuyer should get it.  On such a large investment, it just makes sense!

Apr 28, 2015 05:26 AM #50
Rainmaker
525,189
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Always buy title insurance. There is a myriad of problems that can pop up, and title insurance covers many of them.

Jun 06, 2018 08:41 PM #51
Rainer
6,195
Chris Harrison
Ogden, UT
Industry Observer

Thank you so much for a simple, yet effective, description of title insurance. Having purchase three homes myself in the past 25 years, I didn't really understand this concept. Thank you!

Apr 08, 2019 01:39 PM #52
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