Choose a Title Company that Answers Questions
When choosing a title company, you need an established company that is reliable, knowledgeable, and can answer your questions. We often have clients ask us all kinds of questions – some simple, some complex. There are many myths and misconceptions about what title insurance is, what it covers, and whether or not you need it. In this post, we’ll address some common questions and try to clear up some of the misinformation you may have heard.
1. Do I really need title insurance? It seems like a scam.
This is a very common misconception regarding what title insurance is, and what it insures. Other types of insurance – from healthcare to motor vehicle insurance – fall under the ‘assumption of risk’ doctrine in law. This is why, when you buy these insurance policies, they perform a risk assessment to determine the potential for something to go wrong – whether it’s a heart attack or a car accident. These insurers are calculating the possibility of unpredictable events in the future, and insuring you against that possibility based on the odds.
Title insurance, however, operates under the ‘risk elimination’ model. Your title search tries to identify and eliminate as many risks as possible before you buy your property, so that the odds of ‘something going wrong’ are reduced. This is why title insurance typically pays out less often than other types of insurance. However, when you consider that roughly 20 – 25% of all properties have some kind of title hazard, and that not all hazards are discoverable, title insurance is definitely a necessity.
2. Do I need title insurance if my house is brand new?
We can understand where this question is coming from. If your home is part of a new development, then surely there are no title hazards, as yours will be the first deed in the chain-of-title?
This is simply not true. Your house may be new, but the land it’s sitting on has been there all along! And someone owned that land before your house was built. A title search may still reveal title defects, like easements, liens, or outstanding taxes. Title insurance will still protect you against hazards and encumbrances that existed before the house itself was built.
3. Do I get a cheaper title insurance policy for distressed sales?
Distressed properties are those that are sold under a foreclosure order; the home-owner has not been able to maintain their property or pay their taxes. This can also include REO properties owned by a bank or mortgagee after an unsuccessful foreclosure auction. Because these distressed properties often require renovation work, they typically sell at a reduced price.
However, unlike the other forms of insurance mentioned above, title insurance does not take the depreciated value of the home into account. While an owner’s insurance policy is typically the same amount as the cost of the property at closing, title insurance isn’t cheaper with a distressed sale.
4. Can I buy the seller’s policy from them?
Some people think that the seller’s title insurance policy can be transferred along with the deed at closing. This is not true: just as each property transaction requires a new deed, a new title insurance policy is drawn up too.
However, buyers can receive a “re-issue rate” (essentially a discount) on their owner’s insurance if the seller can provide a copy of their policy that is less than 3 years old. It’s a good idea to ask the seller for a copy of their policy during negotiations, so that you can make use of the reissue rate where possible.