When folks go to settlement on a house they are buying, they are told, "The closing costs include a lender's title insurance policy. The title company asks you if you want an owner's title insurance policy. Folks are often befuddled, and don't know what to do, so they say, "Yes, I'll take it," not really sure of what they just bought.
Owner's title insurance protects you financially should there have been fraud in the title prior or your ownership.
Here is a real life example of owner's title insurance saving a family that my mentor helped buy a home. An agent I know well was called to ask for help sell a glass house in Villa May, on top of the ridge, with a 180 degree of the Potomac River. The agent, showed them the recent sales, and they asked, "What would sell this house within two weeks?" The agent said, "List it for this price (scratched on the paper) and your house will sell in two weeks." They did so.
The house sold to an Army LtCol ROBERTS and his family in ten days, with a 30-day closing. The sellers were told that their mortgage company would be sending the remaining balance tax and insurance escrow balance to them within two weeks. To where do they want the escrows sent? The title company should have known something was up when the sellers said, "Give it to the buyers." That should have been a red flag to the title company.
The ROBERTS moved in, and thirty days later, husband, wife, and the two kids are watching a football game on TV one afternoon when the doorbell rings. The husband opens the door, and there on the front stoop is an elderly couple wearing safari suits, with suitcases, and an airport taxi pulling away from the driveway. The gentleman on the stoop asks, "Who are you people, and what are you doing in our house?" ROBERTS says, "This is our house, we bought it last month." The elderly man said, "That's impossible, we own this house. We've been in Africa doing missionary work with our church. We didn't sell it. Who sold it to you?" "We bought it from the SMITH'S." "WE'RE the SMITH'S," said the couple on the front stoop. "What did the Smith's look like?" The new owner said, "He's a short, fat, skinny tall guy with blondish black hair." The man in the safari suit said, "The was my tenant, JONES who rented the house while we were away."
Here's what happened: JONES received 60 days notice from SMITH telling them that they were coming back to Virginia to sell the house and move to their retirement house in Arizona just before leaving for Africa.
Quick as a bunny, Mr and Mrs JONES went to Georgetown on a Saturday night, where anyone can get various fake ID cards in fifteen minutes for a couple of hundreds of dollars. They got driver's licenses in the name of SMITH. They called my agent friend to put the house on the market. Dallas checked their ID to be certain that they were the owners. The house sold in two weeks to JONES, and settled three weeks later.
Because JONES bought owner's title insurance, they handed the matter to their title company to secure their right to the house.
It turned out that the SMITH's were coming back to sell their Villa May house, and move on to their retirement home in Arizona. The title company attorney said, "Well, we got step one taken care of, we sold the house. Here's a check for the proceeds."
The SMITH's had owned it free and clear for a few years. SMITH wanted to dicker over the price, and eventually came to a meeting of the minds. The genuine SMITH'S signed a deed to ROBERTS to go on record at the Fairfax county courthouse. The title insurance company signed a big check for the proceeds to buy-out SMITH, and ROBERTS remained in the house as the genuine owners.
If ROBERTS didn't have title insurance, they would have had to hire an attorney and a private investigator to go after JONES and return them to the Fairfax county courthouse to be tried for fraud, and secure the remaining funds from the sale of the house. The investigator caught up with JONES in Arkansas, and with cooperation from the local sheriff, took the into custody with an arrest warrant issued by the Fairfax County Court. JONES still had the money in a bank account with Bank of America.
ROBERTS would have had to pack up and leave until the transaction was worked out such that SMITH signed the house over to ROBERTS, after the investigator nabbed JONES and the money. Meanwhile, ROBERTS would still be paying the mortgage payment until after the lender got the proceeds from their title policy, and the remainder came from Jones.
So there you go... a real life story about title insurance, and why we need it. Moreover, title policies for the owners last forever, so keep all of your title policies from all of your houses.
An owner's title insurance is a relatively inexpensive, one-time charge at settlement that will protect your assets over your entire life.
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