04 Feb Is Title Insurance A Scam?
Even though I think very HIGHLY of the need for a detailed title search when buying real estate and would NEVER purchase a property without having done a detailed title search, I do NOT think very highly of title insurance.
What is the difference?
Title Insurance is issued by a Title company AFTER they have run their title search and have satisfactorily identified and removed any clouds on title that they found. Until this point, I am all for it and I LOVE it. However once they have satisfied these requirements they then agree (for a fee) to issue Title insurance on this property.
The problem here is that in that title insurance contract they exclude anything that could harm them, and basically what you get is an almost worthless kind of insurance that you have to pay money for.
So, for example, the typical standard title insurance you probably have on your house, if you go open your file drawer and look for your policy, if you own a home – and if not, ask to look at a friend’s policy – is what’s called a standard ALTA policy. If you look through that policy you’ll notice that it only protects you against anything that is recorded, and it does not protect you against anything that’s unrecorded.
What does that mean?
Well, say you want to buy a piece of land from Uncle Bobby or from somebody who’s, say, 80 years-old, and 30 years ago he gave his property to his nephew George, who put the deed in his drawer and never sent it in or took it in for recording. You buy from Uncle Bobby, but all of a sudden nephew George finds the deed and decides to send it for recording, and now you have a cloud on title. If you want to sell this property again, you’ll have to go fight this. Again this happens very rarely, extremely rarely, and as a matter of fact it has never happened in the several thousand transactions that I have done since I have been in business.
If you ever come across something like that, usually the one who records first is the winner in these cases. So always make sure that you record your documents right away, but if such a case happens, don’t expect a title company to stand up for you. They exclude this from their policy. So what is the difference between doing it yourself and doing it with a title company? There is no difference because whether you do it, or a title company does, you’re not protected in such a case. As long as you thoroughly go through the records and make sure you don’t skip records, you should be able to do the same if not a better job than the title companies and you won’t waste any money.
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