As a home buyer, if title insurance weren't required, Would you buy it?

  • November 03 2011 - US
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Answers (27)

It's a small amount to pay to get insurance on the largest investment you will probably ever make in your lifetime. After 18 years in the business, only two buyers didn't get it and both of them had issues down the road in the title. Get all the insurance you can so you can protect your asset. Thank you for your question.
  • November 07 2011
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Profile picture for Blue Nile
The MERS issue is just a diversion to try to postpone foreclosure.  Of course it won't stand up in court to prevent foreclosure nor obtain property back.  Even if MERS is declared illegal (which is highly unlikely), it will just mean extra paperwork and paper transactions to straighten out the lending documents.  MERS has never been considered a title clouding issue by any title search company.

If a party doesn't pay their agreed upon loan payments, the Lender has every right to foreclose according to the mortgage contract, regardless of how many parties own a piece of that mortgage paper.

And if a financial institution falsely takes possession of a home where payments are current, never in default, and sells it out from under the owner?  Title insurance wouldn't be the one that has to pay any claims.  It would be the liability of the lender that foreclosed on the loan to make restitution to the party they took the house from.  In most cases, it is a cash settlement.  In some cases, the lender would have to buy the party an equivalent house, but then there still is no "free equity" and the party would have to make the loan payments again.  And in extremely rare cases, the financial institution may need to buy the property back; but in that case, the present owner is absolutely not going to let the bank have it for what they paid, as there were many other expenses involved.

The issue on Forclosures is not the primary loan; it is all the secondary liens and back-taxes against the property, some of which may not be properly recorded.  Which is why people need to be extremely cautious buying properties at the court house steps.  But if it was already bought back by the bank, and sold REO, the bank already has to clear up all the other indebtedness before the sale.  Many of those other creditors just lost out when the property went to foreclosure.
  • November 04 2011
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Very Simply....YES!!!!!  I have never heard anyone say they regreted getting it but I have heard numerous people say they wish they would have!
  • November 04 2011
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Profile picture for the_country_hick
Roberto, if the bank did not have the right to pass on the title the next owner bought nothing. That is the real issue.

I see no way you can say that if I buy a property from my crazy uncle Zeke who had a fraudulent title that is different than buying a house from a bank with a fraudulent title. If you (or a bank) do not legally have the right to sell a property the next owner does not own it. They simply got a worthless piece of paper. The original owner still has title and control of their property.
  • November 04 2011
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better safe then sorry
  • November 03 2011
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Profile picture for Blue Nile
I have not found that insurance for appliances or electronics, cameras,... makes any sense of any kind.  But catastrophic insurance does make sense to me.  However, most life insurance polices still seem to be a bigger rip-off than health insurance, house insurance, liability insurance, and title insurance.

The one exception to me for small item insurance is when one is buying "lifetime service".  Though "lifetime service" will not make much sense for people that keep things only 3 years, it tends to be very economical for people that keep things for decades, especially for cars; such as shocks, brakes, alignments...  Still, they try to use that lifetime service to get you in to sell you things that you don't need at inflated prices.

I absolutely do not understand the present medical insurance model at all.  It is not treated as insurance, but entitlement; more like a "pre-pay" service.  And if it is a prepay service, then why the completely unnecessary middle party taking such a huge cut?
  • November 03 2011
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Title insurance is not required to buy a home whatsoever. Where on earth did so many people get the idea it is?

It may be required by your lender, but is not legally required at all to buy a home. 

by the way, on an average basis for every $1000 paid in title insurance, about $25 goes to claims, which makes this a far far worse deal than the bad deal you get on insurance for appliances etc. at big box stores...

DAN: most states have laws on the books, that state after a foreclosure, there is almost no recourse against the innocent buyer. The prior owner can sue the bank, sue the processor, but at least in AZ, it is darn near impossible to bother the new owner... 
  • November 03 2011
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Profile picture for the_country_hick
Michael, I fully expect several title insurance companies to go belly up in the next few years. This is not because I expect insurance overall to go south. It is because of the bad titles many foreclosures have and the corrections they will need could be far more than many title insurance companies can pay for.

If MERS is illegal and the title chain is broken anyone buying a house that had the title that was not legal could be demanding that title insurance buys the house as a clear title could become impossible to make happen.

This one issue is why I would want to see financials and so on regarding any title insurance company before buying their product.

Without the MERS fiasco I would not have this kind of concern.
  • November 03 2011
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Pasa, in your own weird way, you have hit the head on the nail. The whole title insurance industry is basically an association of Attorneys that self insure each other. Problem is they make the Buyer pay for it, and mark the premiums up 400%. Then they pick and choose who gets to file a claim. It reminds me of the Bar Association handling complaints against Attorneys. I'm calling Barney Frank right now.
  • November 03 2011
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Even if you buy title insurance, sometimes you're not getting title insurance.

There was a title company in the Twin Cities that sold their customers title insurance. The only problem was they forgot to pay the title insurance co.

And there has been other cases of smaller title companies / insurers going belly up. If the title company goes under and the buyer doesn't know who provided the policy, it's difficult to determine who is liable for a claim. If the insurer goes belly up, you essentially have no title insurance.

I had a bank owned closing this past winter where in the course of the title work, there were errors discovered on title. Fortunately the bank dealt with the title issues and it was resolved. But lord knows how many other errors are lurking out there and who pays to fix them when they're found.
  • November 03 2011
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Dan, yes, that is certainly why it is being handled as it is. In fact, he's getting it from both ends. The REA would blackball him. His TI company would fire him, or maybe, make him pay higher rates, thus rendering him non-competitive. But none of that makes me feel any more confident about the efficacy of the product. In fact, it does the opposite. I'm an idiot, hick, assoholic though. I'm skeptical of skepticism.

Again, I've never seen a soul benefit from it, in nearly thirty years of watching. Talk about conflicts of interest. I'm going to sell you insurance against me screwing up. I'm going to make a huge commission on it. I'm going to try to divert you from filing a claim, if I screw up, because I can't let my screw up insurance get used or they wont let me sell it anymore, and make huge commissions. Like I said, if a less interested, or involved, party made the huge commission from selling it, it would seem less conflicted. I don't know. I have never been a fan of insurance.
  • November 03 2011
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Profile picture for Blue Nile
Considering that Glenn posted on another thread:
Has title insurance become so transparant that we are now invisible?

That he makes his money selling Title insurance, and that only 15% of what he collects goes to the underwriter to purchase the insurance, it certainly appears to me that:
1) He would recommend it
2) That he may be biased
3) That he agrees with you that it is a racket with very high premium costs compared with actual claims.

It is like getting in a fender bender with a $1k deductible on the insurance...  why bother reporting it if it would only raise the rates?  One would have to have substantial damage or liability to make it worth reporting to the insurance rather than just paying out of pocket.

But willing to pay $10k out of pocket???  Sounds like the insurance premiums go through the roof with even one minor omission.

(Or maybe he never sent the premiums in to the undewriter, and there was actually no insurance, but the Attorney was self insuring?)
  • November 03 2011
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Profile picture for the_country_hick
Hamp, is it possible that is because he is afraid he would lose more business than the $10k a year he is paying now?

If the title insurance company fired him it could cost him a lot more in lost business.
  • November 03 2011
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Probably.

Yes, but people also have to sue insurance companies in order to get them to pay valid claims, occasionally.

Good question, twice.

The irony is that the people's Title Agent is discouraging them from filing a claim against their Title Insurance, at a cost of about 10K per year to him. If the person that sells you the product then discourages you from using it, then there is something dubious about the product. The Atty has been paying the mortgage for over three years. The lady is a REA. Her sign has been in the yard so long, the paint is faded. The title Agent will end up buying this house one way or the other.

I guess this could be seen as a reason to buy TI, or as a reason to think it is an overvalued legal product that should be called RE malpractice insurance, that the patient pays for (really, not like the Buyer pays the RE commission) and then has to fight past the doctor, to file a claim, after their leg falls off.

To conclude and summarize, I have never, in nearly thirty years, heard any person say, "I sure am glad I bought that title insurance from that nice attorney. It saved my booty". I have heard one set of peeps say the attorney screwed up, and rather than let me file a claim against that great product he sold me, at the Bank's insistence, the fine gent is just going to eat it himself. It makes me wonder about the product and how it is sold. I also wonder how the kickbacks to the Banks, for requiring it, work and how huge they must be. If the Bank actually sold the product it would make more sense.

PS I hope Mr Freezman comes to this thread and enlightens us with his insights.
  • November 03 2011
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Profile picture for Blue Nile
But if the purchaser had not purchased the insurance, would the attorney have done anything at all, or would the attorney just say "that is your problem, there always are things missed, and you chose not to buy the insurance"?

Or would one have to take the attorney to court to get the attorney's errors and omissions insurance to cover the loss?

And when the property is resold, is the same attorney going to provide a decent title report?  Or is the clouded title issue just going to be passed on to the next owner?

It sounds sort of like the physical therapy offices that only get $25 per visit as co-pays from the client, and only $15 reimbursement from the insurance, but if you try to go there without insurance they want $650 for the same 30 minute visit as they charge for everything ala-cart and refuse to negotiate anything.
  • November 03 2011
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Pasa, I don't know if you meant me. Here goes my ill thought out defense, of my off the cuff position, regarding this hypothetical exercise.

In my neck, the 'Title company" is an attorney. If the title company commits misrepresentation, malfeasance, or negligence, while doing the title search, then you would sue them. Their E&O insurance can defend them if need be. That costs me nada. Unless you apply the "buyer pays the sales commission" type logic to the analysis.
 
I also believe that any and all insurance companies pay people to make valid claims go away. They don't make profit by paying claims. Not paying claims is the goal.

Further, I think that the pure fact that so little is known about an insurance product illustrates the marginality of the product's value. If it were so darn important more people would know what it does. 

Funny illustrative story. I know of a purchase in SC, where friends of mine bought a fix and flip house, turns out the Attorney missed an issue in the title abstract, rather than file a claim against the title insurance, the Attorney has volunteered to make their mortgage payments, for them, until the house is sold, to keep from making an ash of himself with his title insurance supplier. The whole thing is a buck-passer circle-jerk.
  • November 03 2011
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Inexpensive peace of mind - I'd get it.
  • November 03 2011
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Profile picture for Blue Nile
I am interested in hearing why the insurance company refuses to pay a valid claim.

Even with an apparently clear title, it doesn't seem that it always it.  It appears that title companies often miss major issues.  Such as an easement being recorded on the property that the easement is granted to, but not on the property that is granting the easement.

Not to mention, there can be all kinds of other documents filed with the State our county that grants property rights that may not be recorded on the title.

So, few claims means that one should buy the insurance?  What assurance do you have that the title search company didn't mess things up for you?
  • November 03 2011
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Profile picture for Sharon Lewis
I would always purchase it for peace of mind. 
  • November 03 2011
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Profile picture for Connie Klemme
i don't think there is a right or wrong answer, just a willingness to accept risk or spend $ in hopes to mitigate the risk.  there are times the insurance doesn't solve the claim problem.  I just would always spend the cash myself.  many people don't
  • November 03 2011
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I did not mean to imply I would buy a home without a title search. If it were a cloudy mess, then I would insure it. If not, I would pass.
  • November 03 2011
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Profile picture for Connie Klemme
the ONLY time i wouldn't buy it would be in the case of family transfer as Pasa mentioned.  and even then it would have to be family transfer such as my parents farm that was originally obtained by the family in the 1889 land run.  buying my aunts house that she bought from someone else 10  years ago is not enough for me- she has a mortgage, they had one before her.

it's cheap- and I've seen MANY claims.   i had a closing last year where the title search discovered a problem with the deed that had occured  years earlier with 2 owners ago before the land was platted- it seems one of the heirs of an estate sale of that land was never paid and had placed a lein on every claim on every house in the neighborhood. (or something like that)- luckily even though the seller HAD paid with cash- she bought title insurance because her mother made a big deal about it.
  • November 03 2011
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Based on the efficacy of the product, probably not. I've never seen anyone, in nearly 30 years, prevail on a claim against a title insurer or have to rely on their title insurance to defend them. I've seen Title Agents duck issues, and pass the buck here and there. I also live in an area where a tribe of Native Americans claimed they owned the whole county, so you'd think I would be hyper-susceptible to the product, but I find myself unconvinced. Then you factor in the disgusting pricing/commission rackets and I think it is an over-hyped product, which is basically a way for Attorneys to collectively cover their assets, while enriching their brood.
  • November 03 2011
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Profile picture for Blue Nile
By the way, if it was just a family transfer of title, I wouldn't.  Even though the title could have been clouded over the years, there is no more "risk" being under one part of the family as compared to another, as long as I have a good knowledge of the history.
  • November 03 2011
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Yes! Definitely!
  • November 03 2011
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Profile picture for the_country_hick
That is like asking if car insurance was not mandatory would you buy it. Some people would buy it just for peace of mind. Others prefer to take a risk hoping they never need it.

I would buy it myself but would also compare what is offered before buying.
  • November 03 2011
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Profile picture for Blue Nile
Yes, but I had no idea you were charging so much for it.

There are just way too many things that can go wrong with a title without it, and way too many people trying to steal property from others who are careless.  And the laws are set up to make adverse possession, unrecorded easements, and contractor liens way too easy.

I don't want someone coming and showing a document the proves they own the property or have rights to the property 5 years after I buy; I want the title insurance company to deal with any of those legal issues.  I want to know that the title is fee and clear when I buy, and that it will stay that way unless I specifically create indebtedness on the property or grant easements for specific purposes.  And I want to know about all easements up front and not be surprised about them 10 years later when a utility company all of a sudden wants to put some monstrosity on my property.
  • November 03 2011
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