Why Do I Need Title Insurance?
There is no requirement that a buyer must purchase an Owner’s Title Insurance Policy. So, with that said, I have to ask myself, why is it that of all of my real estate transactions closed over the past three years, there has been only one couple who has declined the purchase of title insurance?
Hi, my name is Tripp Piotrowski. I’ve been a title insurance underwriter since 1991 and am currently working with BridgeTrust Title Group in their McLean, Virginia office. I have had the privilege of working with Dana on a number of residential transactions over the past several years so I really appreciate her giving me the opportunity to step out from behind my desk to talk to you a little bit about title insurance here on her blog.
Owner’s Title Insurance, not to be confused with Lender’s Title Insurance, is always an option to the buyer. When I asked my buyers about their decision to forego title insurance, despite that the coverage is only a one time charge that protects them for life, they explained to me that they “understood the risks”.
Understanding the Risks
“Wow”, I thought to myself regarding that couple’s decision to opt out of protecting their real estate interests, “how is it that they can understand all the risks?” More unsettling, I wondered if even I understood all the risks despite doing what I do. Having worked for a major lender who contracted me to work in their REO (that is bank speak for Real Estate Owned) department shortly after the big economic downturn of 2007, it was my job to explain to the bank why they did not “own”, and, thus, should not continue to sell or list for sale, some 4000 properties in their inventory despite the fact these properties went through the foreclosure process. Oh, speaking of unsettling, there’s that robo-signing debacle out there, but don’t let me digress.
Understanding the risks is the challenge here. Although I am just the agent and not the actual title insurance company, my understanding is that about 6% of all insured transactions result in some type of claims work. Take into account government regulation: I don’t think you will ever run into a real estate professional who will tell you that “yes, this year, because of regulations, new, revised or otherwise, there will be less risk in the real estate market”. It has been pointed out that the numbers of title claims increase every year. Plus, title claims don’t typically rear their ugly head for years; therefore, predicting when and if a title issue will arise is nearly impossible.
So, when advising the buyer on the risks and what title insurance will cover, here is my bullet point list:
- Documents executed under false, revoked or expired powers of attorney.
- False impersonation of the true land owner.
- Undisclosed heirs.
- Improperly recorded legal documents.
- Prescriptive rights in another not appearing of record and not disclosed by survey.
- Failure to include necessary parties to certain judicial proceedings.
- Defective acknowledgements due to improper or expired notarization.
- Corporate franchise taxes as liens on corporate real estate assets.
- Gaps in the chain of title.
- Mistakes and omissions resulting in improper abstracting.
- Forged deeds, mortgages, wills, releases of mortgages and other instruments.
- Deeds by minors.
- Deeds which appear absolute, but which are held to be equitable mortgages.
- Conveyances by an heir, devisee or survivor of a joint estate who attempts to attain title by ill-gotten means.
- Inadequate legal descriptions.
- Conveyances by undisclosed divorced spouses.
- Duress in execution of wills, deeds and instruments conveying or establishing title.
- Issues involving delivery of conveyancing instruments.
- Deeds and wills by persons lacking legal capacity.
- State inheritance and gift tax liens.
- Errors in tax records.
- Demolition and substandard building liens.
- Administration of estates and probate of wills of missing persons who are presumed deceased.
- Issues of rightful possession of the land.
- Issues concerning the rightful conveyances by corporate entities.
- Deeds and mortgages by foreigners who may lack legal capacity to hold title.
- Legal capacity of foreign personal representatives and trustees.
- Issues involving improper marital status.
- Improper modification of documents.
- Rights of divorced parties.
- Conveyances in violation of public policy.
- Misinterpretation of wills and ancillary instruments.
- Deeds by persons falsely representing their marital status.
- Claims by creditors of decedent against property improperly conveyed by heirs and devisees.
- Issues concerning unlawful takings by eminent domain or condemnation.
- Special tax assessments.
- Real estate homestead exceptions.
- Forfeitures of real property due to criminal acts.
- Issues concerning adoption of children.
- Conveyances and proceedings affecting rights of military personnel protected by the Soldiers’ and Sailors’ Civil Relief Act.
- Issues concerning interests noted in financial statements filed under Uniform Commercial Code.
- Interests arising by deeds of fictitious parties.
- Adverse possession.
- Lack of jurisdiction or competency of persons in judicial proceedings.
- Community property issues.
- Utility easements.
- False affidavits of death or heirship.
- Intestate estates.
- Probate matters.
- Federal estate and gift tax liens.
As you can see from the above, attacks to the ownership of, or those entities being able to claim an interest in and to, your property can come from many different issues. Understanding these risks poses a significant challenge especially when you factor in that matters which do not appear in the public records cannot be picked up nor reported on title searches and examinations.
There are few things in life more important than protecting your home. With a title insurance policy, you as the owner, have an indemnity contract that will reimburse you for loss in the event someone asserts a claim against your property. Going back to my couple who declined title insurance, when it is time for them to sell, I really do hope they won’t have to clear up any unforeseen title issues, like an unreleased mortgage for an equity line or some other issue, but there is no guarantee. I spend a significant amount of time chasing down/clearing up title issues for those who have a policy in place. Often times, it will take days, sometimes weeks, to resolve. Title issues left in the hands of those who are not title professionals result in the most unfavorable of consequences for everybody involved in the transaction.
In conclusion, title insurance is the buyer’s option. Not having title insurance is the buyer’s risk. Leave it up to this real estate professional, I would want you and your investment protected. Please choose wisely.
E R “Tripp” Piotrowski
BridgeTrust Title Group
1320 Old Chain Bridge Road, Suite 210
McLean, Virginia 22101