Title Insurance – What does it cover?

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By PETER ROSENTHAL, President
V.I.P. Trust Deed Company

I am afraid to compare title insurance to women, so I will compare the industry to “the opposite sex.”  You can’t get along with them or without them. Actually, some men stay bachelors all their lives and some women give up on men and stay single for the balance of their lives. With title insurance, some real estate buyers or lenders avoid purchasing a title insurance policy to save the cost.

Actually, I have a love/hate relationship with title companies. In my opinion, they experience a very small percentage of claims and losses compared with the actual premiums collected. Having said this, you would think that they would pay claims fairly and easily. My favorite expression when dealing with title companies is, “Title companies do not offer drive-up claim services.” Unfortunately, over the years I have seen many instances where a real estate owner or lender submitted a perfectly valid claim to a title company and then had to hire an attorney to help pursue the claim. That is the hate part of my relationship. The love part is that title insurance, in my opinion, is absolutely necessary when buying a piece of real estate or lending money on a piece of property, even if you are purchasing from a friend or lending money to a relative.

Title insurance covers many, many things, having to do with the property AND the seller or borrower. If you have ever purchased or sold real estate you have seen an SI (Statement of Identity). This looks like a credit application, i.e. name, social security number, driver’s license number, spouse, divorce, death, previous addresses, etc. This is used by the title insurance industry to make certain that the seller of a piece of property or the borrower on a piece of property does not have any liens or judgements against their name that would adversely affect the proposed title of the new buyer or lender. For instance, your brother may give you a quit claim deed to his half of the rental house that you both inherited years ago. You know your brother and you know the house; no need for a title policy, right? The answer to that lies in how well you REALLY know your brother. Is it possible that he was sued by an employee or previous tenant? Is it possible that he was sued by a merchant for an “NSF” check? Is it possible that your brother has a state income tax lien or IRS lien? If so, when your brother gives you a quit claim deed you will not know until much later that this quit claim deed was given to you SUBJECT TO the aforementioned liens or judgements. Imagine getting a quit claim deed to half a property that you value at $130,000 just to discover that your brother failed to inform you that he had state tax liens and personal judgements against his NAME in the amount of $180,000. Until those items are paid off or .negotiated, you have nothing other than a piece of paper.

At the time you obtain a title insurance policy as a buyer or lender, you can be assured that all liens have been satisfied and that any delinquent real estate taxes have been paid. You can also be assured in the event of a purchase that existing loans will be paid off. One of the most confusing aspects of title insurance is that it only insures your title as of the date insured. If you buy a piece of real estate or make a loan in February, 1995, the policy does not insure against delinquent real estate taxes or liens placed on the property after the date of the insurance policy. If you were to go through a relative’s safe deposit box you might find a title policy insuring a loan, as an example, as a first trust deed. At a later date, the owner could have taken out a second trust deed and a third trust deed and also fallen behind in real estate taxes. Remember, the title policy ONLY insures the correct title as of the date of insurance.

In summary, you can’t live with them and you can’t live without them.

Peter Rosenthal
VIP Trust Deed Company