"How to
Save Up to 90% on Title Insurance."
By Attorney William Bronchick
If you have ever bought or sold real
estate, you have probably paid for title insurance. What exactly
is title insurance? Why do we need it? How can I save money on
title insurance? These are common questions asked by real estate
investors.
Whenever title passes, the seller usually gives
a deed containing certain guarantees or "warranties"
(hence the name "Warranty Deed"). The seller warrants
that title is good, that is, no one will come challenge the integrity
of the title. For example, if a deed that was passed before him
was forged, all subsequent transfers are void. Other problems
may be more subtle, such as a deed with an incorrect legal description
or misspelled name. Any irregularities in the "chain of title"
will place a "cloud" on the integrity of the title.
The Title Search
When you are ready to sell a property, a title
search is performed by a title company or attorney. The title
searcher follows the chain of title back about 50 years, tracing
the ownership through deeds recorded in pubic records. The searcher
also checks to make certain that previously recorded mortgages
and other liens have been released. Based on documents found in
public records, the title company or attorney will prepare a "title
insurance commitment." A commitment is a statement that based
upon certain documents found by a search of public records, the
company will issue a title insurance policy for a certain fee.
The Title Insurance Policy
The title insurance policy, unlike most insurance
policies, covers past events. For example, the daughter of a previous
owner claims that her father conveyed a deed while not mentally
competent, the current ownership may be in jeopardy. The title
insurance company will defend the claim and pay for any damages
(usually the value of the property). The policy does not cover
claims based on events that occur after the policy is issued.
Furthermore, the policy usually contains numerous exceptions,
such as claims based on information undisclosed to the title company.
Thus, if you are aware of any potential problems that might lead
to a claim, your failure to disclose this information to the title
company will lead to a denial of a claim based on those events.
Ask for a "Re-issue" Rate
A title insurance coverage starts from ancient
history and ends from the date you transferred title. Since most
transfers are insured by a title company, the longer you own the
property, the more the policy costs. Consider this: if you buy
a property and the transaction is covered by title insurance,
then you sell it six months later, what are the chances that something
went wrong in the last six months? The answer is that the chances
are slim to none, so the risk of a claim against the title are
slim to none. For this reason, title companies offer a "re-issue"
rate. The re-issue rate is a discounted price (usually about 40%)
on the title insurance policy if another policy from a title company
was issued on the same property within the last few years. The
rate is lower because any claims that arise from events before
the previous owner are covered by the previous policy. Thus the
new policy really deals with the risk of claims from events that
occurred while you owned it.
Try a "Hold-Open" Policy
If you are buying a property with the intent
of re-selling it within a year, ask the title insurance company
for a "hold-open" policy. For a small fee (usually an
additional 10% on the policy), the title company will hold a title
commitment open for a year or more. Rather than issue a policy
based on the first transfer (from the seller to you), they will
issue a policy on the second transfer (from you to the next buyer).
Since the seller usually pays for title insurance, you can pay
the additional 10% when you buy, saving 90% on title insurance
when you sell.
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