Case Study: Why Owner’s Title Insurance Is Important

August 20, 2008 by Danilo Bogdanovic  
Filed under Buyer Resources, Homeowners

Why

Many home buyers wonder why they should purchase Owner's Title Insurance. Afterall, it's anywhere from several hundred to a few thousand dollars, which is definitely not chump change. To be honest with you, most of those who purchase Owner's Title Insurance will never need it.

But the reason why you should always purchase it is because a title issue could cost you tens, if not hundreds of thousands of dollars and possibly your home.

Here's a recent real life example of Owner's Title Insurance coming to the rescue:

My buyer clients submitted an offer on a foreclosure/bank-owned property in Broadlands. The seller, Wells Fargo, accepted the offer and we continued on with the closing process.

At the 11th hour, the settlement agent, Mike McFarlane from Highland Title and Escrow, and the seller's title agent, Samuel I. White, PC, noticed that there was a discrepancy on one of the forms. The form, which was signed by the previous owners (who were foreclosed on), took the wife's name off the deed and gave the husband sole rights to the property. The husband had signed for the wife using a Power Of Attorney. The problem was that the Power Of Attorney was dated the day AFTER the deed was signed. This meant that the deed was invalid.

This presented a huge problem for everyone because it meant that the wife may still have claim to the property. But…that's where title insurance comes in.

Since Wells Fargo had foreclosed on the property and had title insurance on the property, the title insurance company was responsible for previous owner's issue and Wells Fargo and the buyers were off the hook. The sale could go on.

Had the seller not purchased title insurance, the sale would most likely not have gone on and the buyers would have been without a home. In addition, Wells Fargo would have been stuck with a huge legal mess.

Here's another real life example:

Years ago, there was a plot of land in Countryside that was bought by a developer. The developer built a community of town homes which were all sold to home buyers. Once the development was complete, someone contacted the developer and all of the homeowners in that community saying that they had rights to that land and they were illegally on it.

It turns out that this person, a Native American Indian, provided proof that this land was rightfully theirs based on an 100+ year old written contract. In fact, the land the community was on was a Native American Indian burial ground with some of their ancestors buried in it.

The story ends as such…each home owner's title insurance company got together with the other and they ended up settling with the person for millions of dollars.

But what if one of the home owners did not have title insurance? That homeowner would have to come up with their share of the settlement on their own or give up their home, neither of which are good.

As you can see, once a title issue arises, it's usually not small. Though the possibility of it happening is very small, are you willing to gamble your greatest asset and your family's home on it not happening to you? Several hundred to a couple thousand dollars is a small price to pay when compared to what could happen (IMHO).

NOTE: There's a way to save up to 30 percent off of Owner's Title Insurance. Click here to find out how.

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Comments

5 Comments on "Case Study: Why Owner’s Title Insurance Is Important"

  1. Frank LL0SA- Broker FranklyRealty.com on Mon, 1st Sep 2008 2:15 am 

    Hey Danilo,

    Not sure I agree with you here. I actually am undecided about Title Insurance, so I try and show some of the “cons” and let the consumer pick.

    Have you done much research on the flip side of the argument?

    Like the study in South Carolina that said you were more likely to be struck by lightning then have a total failure that Title Insurance covers? So why not get lightning insurance?

    Or the fact that the closing company pockets 80% of the policy? So you pay $1000, but only $200 goes to the Title insurer… so how much insurance can $200 really buy you?

    Or the fact (I could be wrong) that the lender’s policy, which is required, would have covered the Indian case you mentioned before.

    Or the story of a Closing Company owner that bought a house I listed… he didn’t buy title insurance! And he gets to keep 80% of it, and he still didn’t think it was worth it. His excuse “Well I checked very carefully, but your clients should close here, and they should all buy insurance.”

    Or the lady that had to sue the Title Insurance Company to perform. Everyone thinks you just slap a paper down and everything is done. Not necessarily true.

    Or last week when I was sold a place, the buyer was a lawyer. He was pissed at the closing company for trying to sneak in title insurance. He called it an industry scam, and the closing company owner didn’t say a peep. Yes a very successful lawyer called it a scam.

    While this might sound like I’m against Title Insurance, that is not the case. I’m against people getting it without thinking and I’m against the closing companies, all rejecting my challenge to show me ACTUAL stats of the % chance based on their last 1000 deals, of a problem occurring. Are we talking 1 in 100 or 1 in 25,000? If it was 1 in 25,000 I’d rather buy a lotto ticket.

    Sorry for the rant and feel free to post your “pro” examples on my title insurance post (add a link too)

    Frank

  2. Danilo Bogdanovic on Tue, 2nd Sep 2008 10:06 am 

    Frank – Thank for commenting and bring up those examples.

    There will also be people that think Title Insurance is a scam. There will also always be people that think health insurance, car insurance and many other type’s of insurance are a scam.

    On the flip side, there are those that would never buy a house without Owner’s Title Insurance. Just like there are those 1-in-many people that won’t ever buy a house with the laundry upstairs because they or someone they had had their upstairs washer flood. That would never be a deal breaker for me personally, but that’s because I’ve never had an upper level washer flood on me.

    My point is that until something hits close to home it’s hard to be a believer. Until you find out that you’re house is in jeapordy of being swept up from under you, it’s hard to believe that Title Insurance is worth it.

    The premiums and amounts insurance companies charge seem like rip-offs. Yes, the margins that settlement companies make on selling Title Insurance are huge. That’s why I published a post on how to save 30% on your Owner’s Title Insurance.

    As far as the town homes/Indian case, Lender’s Title Insurance would only have protected the lender’s interest in the property (the loan amount) and not the remaining amount. If one had put a 20% down payment on the house, they would have been SOL for that 20%.

    Your request to see what the statistics are is a very valid one and I’d be curious to see those too. Maybe we can brain storm together and see how we can get our hands on those.

  3. Jeff on Tue, 6th Oct 2009 5:01 pm 

    Insurance always seems expensive BEFORE the accident happens.

  4. Danilo Bogdanovic on Tue, 6th Oct 2009 5:11 pm 

    Jeff – Sounds like you know from experience…?

  5. life insurance provider on Thu, 1st Jul 2010 5:59 am 

    The good thing about the Title Insurance is that rather than you fighting the claim which can cost tens of thousands of dollars, the Title Insurance company handles it for you. You don’t have to waste your time, energy or money worrying fighting the claim.

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