In upstate New York many buyers do not purchase an owner title insurance policy. This seems to be a throwback to the days of how closings used to happen. Before the government basically took over the mortgage industry and required that borrowers buy mortgage title insurance, the cost of owners’ title insurance resulted in a custom of upstate buyers not purchasing owners title insurance. This happened in part because sellers gave warranty deeds, the attorneys actually read the abstracts of title and gave title opinions (of course their legal fees were higher as well) and the incident of fraud was low.
Downstate buyers always purchased owner’s also known as fee title insurance. Downstate, warranty deeds were not given and sellers were more anonymous. Title insurance was the only practical way of protecting ones purchase; suing a seller on a warranty just was not a realistic option.
Now with the requirement that borrowers purchase mortgage or lender’s title insurance for the lender, buyers should purchase owners title insurance. This is due in part to the lowered cost; a buyer receives a 70% reduction in the mortgage policy rate when they simultaneously purchase owner title insurance. This is a one-time expense.
Fee title insurance can help realtors. In addition to covering title claims Fee insurance can be a deal saver on future closings. I was recently a lender attorney on a closing that couldn’t be scheduled due to a 20 year old open mortgage from a prior owner that should have been discharged of record. Of course the old bank was out of business and the prior parties were gone. Nobody wanted to put forth the effort to clean it up. If the sellers had had a fee insurance policy an indemnity letter could have been issued and the closing could have proceeded without delay. Since it was an old mortgage nobody had a loan number or a social security number or authority from the prior debtors. The mortgage rate lock date passed and otherwise unnecessary mortgage extension fees were incurred. The parties argued over the fees and the delays. The deal almost fell apart. If the deal did fall apart then the realtors would have had to start over. The realtors had to struggle to keep the sale alive. Fortuitously, the mortgage broker knew the husband of the senior partner of the sellers’ attorneys firm and made some calls and got them to move. That’s how protracted the situation had become.
At closing, the sellers had to place thousands of dollars in escrow; they complained throughout the closing. Escrow agreements had to be negotiated and executed. Fees increased and we still don’t know how much more the sellers will have to pay to cure title; they might have to sue, which is always expensive, to clear title. This work and expense could have all been dumped on the title insurance company and the additional expenses (which were far greater than the cost of title insurance) could have been saved. Don’t be penny wise and pound foolish; have you buyers purchase an owners title insurance policy. The deal you save may be your own.
*Conflict disclosure. I am an examining counsel for a national title insurance company and I earn a fee for the work that I do from the title insurance company when I research and prepare (sell) a title insurance policy. However, as the title insurance rates are set by the NYS insurance department the borrower’s cost for their title insurance does not increase because of this.
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