Hi folks, I did a search and couldn't find a specific thread dealing with title insurance questions. That said, I have two questions of my own.
Small details: I'm purchasing a foreclosure which is a HUD home located in suburb of Detroit (and decent neighborhood). I will live there. The price is $107 and my financing is with USAA 30 yr. fixed, 20% down. I don't consider myself poor, just frugal.
First, Is homeowner's title insurance really necessary? $800 isn't much compared to the price of the home I'm purchasing, but if I can go to the court house and spend a few hours to do it myself, I'm willing- I don't make 400 dollars an hour yet.
Second, If the FWF gods decide that it is important to get, are there specific title insurance providers I should look at? edit: grammar
Message edited by: highmktgoods on 2009-10-23 16:40:51 CDT
geo123 said:[Y]ou have to know what protections, if any, it gives you and whether the cost of the policy is justified by the level of protection. The problem is that the vast majority of people out there are extremely surprised when they discover that title policies that they purchased do not protect them against most of the things that they are seeking to cover.
geo123 said:The reason that you purchase a title policy is to insure against various inadequacies in the title report.
geo123 said:...title insurance is no substitute for good title.
geo123 said:I can tell you that as a residential purchaser I would absolutely ALWAYS purchase an owner's policy if I was buying new construction, since it is extremely common to have materialman's liens on those and title policies typically provide good coverage against such claims. I would likewise ALWAYS purchase an owner's policy if the property I was buying had undergone recent remodeling/renovations, so I wouldn't have to worry about materialman's liens there. In all other circumstances, it would be a case-by-case decision for me, which would depend on the precise circumstances surrounding each property.
geo123 said:In general, however, although title insurance companies can be incredibly difficult to get a payout out of, they can be helpful in resolving an insured title issue, so that it doesn't result in a loss...
geo123 said:By the way, foreclosure is one of the situations under which I would seriously consider NOT purchasing title insurance.
geo123 said:...to me purchasing a foreclosed property from a bank carries far fewer title risks than a regular residential transaction.
geo123 said:While I think that in certain cases title insurance can be invaluable, it is generally extraordinarily difficult to force them to make a payout, particularly when you don't have a lot of leverage and don't know how to properly structure title insurance up front.
geo123 said:...when you combine the often inadequate up front preparation with the lack of leverage that consumers have, it often becomes extremely difficult for consumers to get much help from title insurance companies.
geo123 said:As with all other important decisions out there, please be sure to do your own research to ensure that you are comfortable with the decision. Please do not just rely on my or any other people's posts to make such a decision without independently confirming its accuracy and its applicability to your specific situation.
Message edited by: highmktgoods on 2009-10-23 17:00:43 CDT
Your lender will require title insurance. The only way to get around it is to not finance the property. You can save money on the title insurance if you shop around.
Shop around, the title incurance costs vary a lot. Check www.titleinsurance.com for your local title company listings and call them for a quote. You could also check out www.entitleins.com
Your lender will require title insurance on essentially their 80% portion of the property value. Insuring 20% that you own is optional, but would be very highly recommended in your situation (initial purchase, foreclosure, etc). The extra cost should be minimal and likely included in $800 you were quoted.
Depending on your state's regulations, title insurance policy pricing may be uniform across all insurers or it may vary quite a bit. Other title-related charges can easily vary from issuer to issuer, so you can shop around.
Message edited by: lampy2k4 on 2009-10-15 22:34:42 CDT
A title search should reveal liens and delinquent taxes against the property, which may be significant. Easements and title conflicts should also be revealed.
OP, you argue that you could easily win any legal/lien challenge by going to the court house for a couple of hours. That's not a safe assumption.
Message edited by: Xnarg on 2009-10-16 06:27:18 CDT
Xnarg said:A title search should reveal liens and delinquent taxes against the property, which may be significant. Easements and title conflicts should also be revealed.
OP, you argue that you could easily win any legal/lien challenge by going to the court house for a couple of hours. That's not a safe assumption.
Xnarg, I didn't quite say what you've said I've said, but I think I understand that you feel that the cost of $800 is not worth the potential headache of discovering liens etc that I might miss as a lay person if I go to search the title.
Can anyone else add their input? How about people that purchase properties frequently?
highmktgoods said: Small details: I'm purchasing a foreclosure which is a HUD home located in suburb of Detroit (and decent neighborhood). I will live there. The price is $107 and my financing is with USAA 30 yr. fixed, 20% down. I'm don't consider myself poor, just frugal.
I know Detroit is very cheap, but I assume you pay $107,000. Not Onehundredandseven dollars. I cannot imagine to finance $107 over 30 years.
As someone else said, no lender is going to give you financing without title insurance.
I bought 5 properties in the past 12 months and you would be surprised if you knew what can happen.
How about some unrecorded activity? I bought a house where the previous owner had deeded 50% away to some LLC but (intentionally) did not record it. Believe me, I was sweating for a while, .. because I did not have title insurance. Unrecorded does not mean that it has no substance.
Other scenario. The previous owner's live-in girl-friend who has lived there for 10 years and suddenly comes out with a claim?
Even if you would buy cash, $800 is pennies, pay them for your peace of mind.
-Peter
Message edited by: ptiemann on 2009-10-16 20:53:03 CDT
Your lender will require title insurance on essentially their 80% portion of the property value. Insuring 20% that you own is optional...Not quite. The lender will require title insurance equal to the amount of its loan, which will only protect the lender. Hence, if the OP desires to have title insurance that protects him, he will have to purchase a separate owner's title policy for the entire amount of the purchase.
By the way, foreclosure is one of the situations under which I would seriously consider NOT purchasing title insurance. This is because foreclosure proceedings wipe out junior liens, so the usual concerns about materialmen liens and the like are not a concern when you are purchasing a foreclosed property.
Further, remember that when you purchase a property, the warranty deed that you receive from the seller gives you recourse against it for any and all title problems. In a regular residential transaction, these recourse rights are of limited value because the seller may or may not have the resources to help you or to compensate you for the damages. When you are purchasing a foreclosed property, however, the warranty deed comes from a bank, which has the resources to ensure that title issues are remedied and to compensate you for any and all damages that you may suffer as a result of these issues. Hence, although not totally bulletproof (nothing is), to me purchasing a foreclosed property from a bank carries far fewer title risks than a regular residential transaction. This, in many cases, would cause me not to purchase title insurance.
geo123 said:By the way, foreclosure is one of the situations under which I would seriously consider NOT purchasing title insurance. This is because foreclosure proceedings wipe out junior liens, so the usual concerns about materialmen liens and the like are not a concern when you are purchasing a foreclosed property.
Further, remember that when you purchase a property, the warranty deed that you receive from the seller gives you recourse against it for any and all title problems. In a regular residential transaction, these recourse rights are of limited value because the seller may or may not have the resources to help you or to compensate you for the damages. When you are purchasing a foreclosed property, however, the warranty deed comes from a bank, which has the resources to ensure that title issues are remedied and to compensate you for any and all damages that you may suffer as a result of these issues. Hence, although not totally bulletproof (nothing is), to me purchasing a foreclosed property from a bank carries far fewer title risks than a regular residential transaction. This, in many cases, would cause me not to purchase title insurance.
Thank you geo123, I was sitting on the fence until I read this.
highmktgoods said:Thank you geo123, I was sitting on the fence until I read this.I don't mean to speak from both sides of my mouth here but I wanted to make sure that you understand that a number of title defects would not be cured by a foreclosure. For instance, if there was a federal tax lien that was filed against the property, which was not properly extinguished by the foreclosing lender's attorney, it would remain on the property. There could also be various defects related to the legal description and the like that would not get cured by a foreclosure.
In most if not all of these cases, you should have recourse against the seller-bank by virtue of the provisions of the warranty deed, but actually obtaining such recourse wouldn't be as easy as simply calling up the bank and demanding that it fixes the problem. At the same time, even with title insurance, it is generally not particularly easy to get the title insurance company to quickly rectify your title issue and, depending on the issue, it can take months to get something done.
As with all other important decisions out there, please be sure to do your own research to ensure that you are comfortable with the decision. Please do not just rely on my or any other people's posts to make such a decision without independently confirming its accuracy and its applicability to your specific situation.
Message edited by: geo123 on 2009-10-19 17:07:56 CDT
ptiemann said:How about some unrecorded activity? I bought a house where the previous owner had deeded 50% away to some LLC but (intentionally) did not record it. Believe me, I was sweating for a while, .. because I did not have title insurance. Unrecorded does not mean that it has no substance.How did you resolve it ?
Their lawyer had a big mouth, but not much substance. Quote: 'Bankruptcy is only one trick in my bag. You will regret this purchase. We have some bad surprises for you.'
I told him to show me what he got, answer was just more garbage ('we currently sue Chase')
Eventually they folded. The deeding away was invalid.
This was a trustee sale, so I *could* not get title insurance. Believe me, the people at First American or Chicago Title are not geniuses either. They check the records and issue title insurance if everything looks clean. They do make mistakes and then the insurance would pay. Do you think that the people at the title company check the chain of title and all possible things all the way back to 1900 or whenever the parcel was divided and sold? I *BET* they go back to the last sale and look from then forward. Which should be good enough in 99.9% of all cases.
In the above described case, the trustee had checked records, foreclosed on the defaulting borrower, only to rescind the trustee's deed 4 months later. Yes, the foreclosure was [temporarily] reverted. I state that as an example that professionals can make mistakes in researching public records.
Not getting title insurance on a regular purchase is plain stupid. It's like saying 'I don't need car insurance because I drive carefully and observe all traffic laws'.
Or a quote, not sure where I read it. 'If you think title insurance is expensive, then you cannot afford not to have it'.
ptiemann said:Not getting title insurance on a regular purchase is plain stupid. It's like saying 'I don't need car insurance because I drive carefully and observe all traffic laws'.Respectfully, your analogy is misplaced. In fact, there is absolutely nothing stupid about not purchasing owner's title insurance on a regular purchase -- it all depends on the circumstances. There is a reason that I keep repeating that title insurance is no substitute for good title.
If you'd like a real world example, take a look at the following situation, which I described in the thread I linked above: As way of background, for the past 6 or so months we have been representing a large bank in connection with its efforts to work out a loan with a troubled residential builder. It now looks like we will be foreclosing on the builder's unsold inventory, which includes both empty lots as well as spec houses in a couple of subdivisions.
Here is the issue: in one of the subdivisions a recorded plat for the initial phase of the development described two adjacent lots as lots 1 and 2. Our bank client has a perfected security interest on all the lots in that subdivision, including lots 1 and 2 as set forth in the initial subdivision plat. In the course of the development of the subdivision, the builder then made a few changes to the layout of the subdivision, which is fairly standard. One of the changes that it made was to join lots 1 and 2 into one lot and to then build a house on the joined lot. The builder filed a new subdivision plat which, among other things, showed the joined lots 1 and 2 and simply called them lot 1. Again, it's all fairly standard since plenty of subdivisions have several versions of plats filed during different phases of their development (although I probably would have called the joined lot something else to eliminate the potential confusion).
About a year or two ago the builder then sold the joined lot and the house in question to a residential purchaser. The residential closing attorney on the transaction requested a payoff from our bank client and just referenced lot 1 without mentioning which plat he was using. Since all the bank's records were based on the initial plat, the bank provided a payoff letter on lot 1 under the initial plat (which is only half of the lot that the purchaser was buying) and, upon the residential closing attorney wiring the release proceeds to the bank, released its lien on that lot, as described in the initial plat. The closing attorney then prepared a warranty deed whereby the builder conveyed to the purchaser lot 1, as described in the initial plat, as further described in the final plat (that description was, of course, incorrect since lot 1 under the initial plat is only 1/2 the size of lot 1 under the final plat). The residential purchaser purchased title insurance that used this legal description.
Do you see the problem? Our bank client still has a perfected senior secured lien on lot 2, as described in the initial plat. We are about to foreclose on all the unsold inventory, which includes lot 2. Half of the residential purchaser's house is located on that lot 2 but his title insurance does not cover it because the legal description pursuant to which the residential purchaser acquired the property does not give him any rights with respect to lot 2, so title insurance won't cover something that he never purchased. Hence, unless something can be worked out prior to the foreclosure, our bank client will literally end up owning half of a person's house and half the land under it and can do whatever it wants to do with it.
Do you now see the reason that I keep saying that good title is far better than title insurance?
geo123 said: Do you now see the reason that I keep saying that good title is far better than title insurance?
I see your point. I have never run into such a situation. The person who wrote that originally (you?) made the right point. Joining lot 1 and lot 2 should not have been named 'lot 1'.
When you purchase title insurance, you get a title report which includes a vicinity map. The vicinity map does show the lots and measurements. I suppose it comes down to the buyer. The buyer should have seen that the title report described a lot that does not match what he thinks he is buying, e.g. the paper says lot is 50 feet wide and the house sits on a 90 foot parcel.
However, I admit, that I rarely spend a lot of time looking at this map. It never was an issue as I never bought in such a newer subdivision. I can see that someone falls in a trap there.
ptiemann said:Their lawyer had a big mouth, but not much substance. Quote: 'Bankruptcy is only one trick in my bag. You will regret this purchase. We have some bad surprises for you.'
I told him to show me what he got, answer was just more garbage ('we currently sue Chase')
Eventually they folded. The deeding away was invalid.
This was a trustee sale, so I *could* not get title insurance. In the above described case, the trustee had checked records, foreclosed on the defaulting borrower, only to rescind the trustee's deed 4 months later. Yes, the foreclosure was [temporarily] reverted Wow, thanks for responding.
I know your situation was eventually resolved in your favor, but what would have happened if it was not. Would the Trustee have had to refund your money? What is the legal responsibility of the Trustee?
Message edited by: xoneinax on 2009-10-20 13:02:34 CDT
xoneinax said:I know your situation was eventually resolved in your favor, but what would have happened if it was not. Would the Trustee have had to refund your money? What is the legal responsibility of the Trustee?
Yes, the trustee would have refunded me the purchase price. It would still have been a loss for me ($330k tied up, and other small expenses like recording, insurance, lawyer..)
Like others have mentioned here before, the $800 you were quoted was not what you will save. Most likely the $800 is for lenders and owners coverage, the only optional part is the owners coverage, which is probably only about $200 or so. Just get it.
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