What is it? Do I need to pay for it?
Wikipedia’s definition is: “Title insurance is a form of indemnity insurance, which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans”.
So, why do you need this title insurance, which is a onetime cost at the time of closing and based on the value of the property? Closing, refers to the event where the property is being transferred from seller to buyer, which is also called “escrow” or “settlement” in some States.
The answer is: YES! And it is best described why you need it, sharing my own experience:
My investor client closed on a property in Maryland on a Tuesday after having walk through at the property. The property needed work and my client went back to the property on Thursday with his construction company to start working. When they arrived, what a surprise: the house was wrapped like an Easter Egg with crime scene yellow tape and a sign: ”do not enter by court order – do not trespass” My client called me and we found out that the court had attached the house to a law suit for punitive damages. Apparently the dog of the former owner had bitten a person, who sued him in court for damages. The judge attached the house to the law suit for punitive damages on Wednesday!
The importance of having a title insurance was imminent. My client hired an attorney who notified the court of the closing, which luckily happened prior of the judge’s order. The damages for my client were small, mainly attorney fees – but paid by his title insurance.
Other examples for claims could be:
· A person in bankruptcy signs the deed to convey the property without authority to do so
· A family member is forging the signature and conveys the property to a third party
· A deed is incorrectly recorded with wrong legal description
· A mechanic lien was placed against the property, which was not found at time of title search
These things do happen!
If you finance the purchase of the property with a mortgage from a lender or refinance your loan, you have to obtain a title insurance to protect the lender. You do not have a choice. In some areas (like Palm Beach County) it is customary that the seller pays for the lender’s title insurance premium.
But to insure yourself - the buyer, this insurance is optional. Owner’s title insurance is complex and you should read the policy to understand any exclusions. Ask the title agent to explain the coverage to you.
How much is the title insurance? In the State of Florida the insurance and indorsement rates are promulgated by the Florida Insurance Commissioner. To give you an example: For a sale of property valued with $200,000 the insurance premium is: $1,075 (indorsement fees may be added).
Since you are required to pay for the lenders policy, you can ask for a simultaneous issue rate, which will make your owner’s policy relatively inexpensive. In the above example the additional fee would be $25. Also if the owner has a policy which was issued less than three years prior, you can request a re-issue rate – which is a reduced premium for up to 40%. If you are paying cash the owner’s policy would be the full amount of $1,075. The insurance covers you as long as you (or your heirs) own the property.
Having a Title Insurance gives you the peace in mind as we live in a litigious society.