USA Home Purchase Title Insurance (need or not) Help

[BobTH]

Ok, this is kind of a follow-up post. I asked here before about notary options here if needed on buying a property in the USA. I am buying the property from the estate trust of my fathers best friend. He was a wealthy straight shooter and did everything by the book and owned the property since 1996. I was told by the trust attorney handling the sale that since I was paying cash and not getting a mortgage that the only reason there might be notary signatures needed is if I want title insurance ($700) which they said was customary to get but not mandatory. But I am thinking that if my Dads friend owned the place for 22 years and nothing came out of the closet during that time that the probability of me ever having an issue is very very low. My father is also going to visit the holding title company next week to see what information they can give him. Ok, my question: Since I am not a real estate expert and perhaps some of the group members have over the years done may transactions or worked in the business do you think I am safe if I decide (which I am leaning towards) not taking the insurance to simplify the purchase of the property. Thanks in advance for your knowledgeable remarks. 

[Dante99]

Lenders require the policy to secure their investment.  You should do the same unless of course you know a lot more than the lenders which is unlikely.

 

The cost of the policy is very small compared to the price of the property.

 

Are you safe without it?  Probably.  Do you want to risk loosing your whole investment? Why for such a small cost?

 

 

[BTempleman]

Title insurance is good only if you have a sloppy title company that doesn't due its job in researching items that affect your purchase such as surveys and liens. Some sellers (banks)  also require a buyer to have title insurance. I'm not sure why you would need a notarized document to purchase title insurance. 

[sirineou]

 I would never consider entering in a real estate transaction in such a litigious country as the US without title insurance, especially an estate sale.

[lannarebirth]

Absolutely ensure full title insurance policy is given to you. In most cases it is provided by the seller and is paid for out of their portion of the escrow account. Specify that they should provide you with an ALTA "extended" policy.

[taxout]

Title insurance has some value, but for what you pay it's a rip-off: claims against title are very rare, even in the litigious U.S.  And remember that title insurance only covers the value of the property at the time the policy is issued. So if over time you improve the property or its value increases through inflation, you're still only covered up to the original amount.

 

You certainly need a title report and a surveyor's report to make sure the title is clean and that you're buying what you think you're buying.

 

But there will be exceptions in the title report, there always are, and as I mentioned before, working with your lawyer to understand the title report and the exceptions is going to cost you legal fees. These can mount very quickly.

 

As a practical matter, what you're paying for when you buy title insurance isn't really the insurance itself; you're paying for the title insurance company to make sure the documents are all prepared and filed properly. If this responsibility falls on your lawyer instead, without the title insurance company acting as a backstop, your lawyer's time and thus his fees will probably go up.

 

So I repeat, keep the whole picture in mind, not just how much one element is going to cost.

[Nyezhov]

You ought to see the Title companies pulling their hair out when the search goes back to 1675

[lannarebirth]

10 hours ago, taxout said:

Title insurance has some value, but for what you pay it's a rip-off: claims against title are very rare, even in the litigious U.S.  And remember that title insurance only covers the value of the property at the time the policy is issued. So if over time you improve the property or its value increases through inflation, you're still only covered up to the original amount.

 

You certainly need a title report and a surveyor's report to make sure the title is clean and that you're buying what you think you're buying.

 

But there will be exceptions in the title report, there always are, and as I mentioned before, working with your lawyer to understand the title report and the exceptions is going to cost you legal fees. These can mount very quickly.

 

As a practical matter, what you're paying for when you buy title insurance isn't really the insurance itself; you're paying for the title insurance company to make sure the documents are all prepared and filed properly. If this responsibility falls on your lawyer instead, without the title insurance company acting as a backstop, your lawyer's time and thus his fees will probably go up.

 

So I repeat, keep the whole picture in mind, not just how much one element is going to cost.

 

Unless you live in a state that requires a lawyer for a property sale, one doesn't need a lawyer at all. Title Insurance IS a rip off but you still need it. What you most especially need is the "extended" policy which covers all liens, encroachments, easements, etc that are not publically recorded.

[impulse]

He may have been wealthy and may have been a straight shooter, but he wouldn't be the first wealthy straight shooter to get duped into signing over his real estate as collateral for one scheme or another.  Especially if he was losing his mental prowess before he passed away.

 

You didn't mention what state it is, whether it was his primary residence, or what percentage of the property value the title insurance will cost.   You also didn't mention what you plan to use the property for, and whether you plan to flip it, hold onto it long term, or develop it.  Those all play a role in the math as some states severely limit what real estate can be promised as collateral, and on what type of loans, and how long you have to worry about claims against the title.  Other states, not so much.

 

Bottom line, get the title insurance unless you're a real estate expert.  Let someone else worry whether the Ojibway Tribe will win their claims to get back their ancestral land.  Just kidding about the Ojibway Tribe.  I'm not even sure that's a real name.  But you get what I mean.

 

As others have mentioned, you're not just paying for the insurance.  You're paying for their expertise, and for them to do a proper title search, and for any claims that haven't popped their ugly heads into the county records yet.

 

Edit:  I'd also point out that just because nothing has popped up in 22 years, doesn't mean there isn't a stink bomb waiting to go off the next time the property is sold.  It's a lot easier to extract cash at the sale than it is to sue someone who's behind on some kind of payment or another- whether they even know they're behind.

 

Edited December 31, 2018 by impulse

[BobTH]

12 hours ago, impulse said:

He may have been wealthy and may have been a straight shooter, but he wouldn't be the first wealthy straight shooter to get duped into signing over his real estate as collateral for one scheme or another.  Especially if he was losing his mental prowess before he passed away.

 

You didn't mention what state it is, whether it was his primary residence, or what percentage of the property value the title insurance will cost.   You also didn't mention what you plan to use the property for, and whether you plan to flip it, hold onto it long term, or develop it.  Those all play a role in the math as some states severely limit what real estate can be promised as collateral, and on what type of loans, and how long you have to worry about claims against the title.  Other states, not so much.

 

Bottom line, get the title insurance unless you're a real estate expert.  Let someone else worry whether the Ojibway Tribe will win their claims to get back their ancestral land.  Just kidding about the Ojibway Tribe.  I'm not even sure that's a real name.  But you get what I mean.

 

As others have mentioned, you're not just paying for the insurance.  You're paying for their expertise, and for them to do a proper title search, and for any claims that haven't popped their ugly heads into the county records yet.

 

Edit:  I'd also point out that just because nothing has popped up in 22 years, doesn't mean there isn't a stink bomb waiting to go off the next time the property is sold.  It's a lot easier to extract cash at the sale than it is to sue someone who's behind on some kind of payment or another- whether they even know they're behind.

 

Thanks impulse for your reply. The state of Alabama, in the resort city of Gulf Shores, it is a small beach house about .3 miles to the water in the gulf. I plan to improve it some but will live in it long term, I am single and retired, and moving back to the USA after 7 years here in Bangkok.

The owner would not have used that house as collateral, he had a lot of properties and that one had been a rental for twenty years approximately. The insurance would be about 1/2 percent of the property price. I am no real estate expert and I have pretty much decided to get the insurance. I actually asked if the estate trust seller would pay for it. I haven't heard back from the attorney yet and am hoping they will, if they say no I think I will go ahead and buy it myself or see if they will split the cost. Any thoughts or comments?

Edited January 1, 2019 by BobTH

[lannarebirth]

30 minutes ago, BobTH said:

Thanks impulse for your reply. The state of Alabama, in the resort city of Gulf Shores, it is a small beach house about .3 miles to the water in the gulf. I plan to improve it some but will live in it long term, I am single and retired, and moving back to the USA after 7 years here in Bangkok.

The owner would not have used that house as collateral, he had a lot of properties and that one had been a rental for twenty years approximately. The insurance would be about 1/100 of the property price. I am no real estate expert and I have pretty much decided to get the insurance. I actually asked if the estate trust seller would pay for it. I haven't heard back from the attorney yet and am hoping they will, if they say no I think I will go ahead and buy it myself or see if they will split the cost. Any thoughts or comments?

You should also check if you are in the flood plain or subject to tidal flooding that could require you to get flood insurance(which is really expensive now). Nothing you can do about it, but it should have some bearing on the sale price. Best of luck on your purchase.

[BobTH]

16 minutes ago, lannarebirth said:

You should also check if you are in the flood plain or subject to tidal flooding that could require you to get flood insurance(which is really expensive now). Nothing you can do about it, but it should have some bearing on the sale price. Best of luck on your purchase.

The house it raised already and is on stilts. I am paying cash(no mortage),I have already decided not to take flood insurance. The lot is worth almost what I am paying for the property and it has made it through major hurricanes already. If I lose it I would just rebuild or sell the lot. Sorry this sounds kind of drastic but it's true. Thanks for your thoughts though.

Edited January 1, 2019 by BobTH

[gk10002000]

On 12/30/2018 at 4:19 PM, sirineou said:

 I would never consider entering in a real estate transaction in such a litigious country as the US without title insurance, especially an estate sale.

100% agree.  And sadly even some times now and then the title insurance falls a bit short and some contractor liens and other stuff show up later.  But one can only check so much and if you do have the title insurance it gives you the proper leverage if later you have to go to court. You may have done nothing wrong, but every now and then you still run into problems