I often get asked, “Why do I need to buy title insurance for myself? You searched the records, made sure everything is good, and besides, the bank has title insurance for its mortgage, so I really don’t need to spend any more money. Right?”
The fast answer is WRONG!
There are a number of reasons to purchase title insurance for yourself when you purchase real property. I have always said that title insurance is the second most important thing that you pay for at settlement (my legal fee, of course, being the most important J).
Title insurance provides insurance against many things that are not part of the filed records, and in addition, provides insurance against human error in doing the search, and in the clerk’s office for mis-indexing documents.
The time between when you close on your home and the documents being recorded and made public (which in some counties can be several weeks, because of how far behind the clerk’s office is in indexing documents) is referred to as the “gap”. During this time, things can be recorded before your deed that affect your property, that you would not know about.
By law, title insurance in the state of Florida protects you against anything that is filed during the gap. For example, your seller might owe a lot of money to the IRS for taxes, but no tax lien has been filed against them . . . yet. The title search would come back clean (meaning no IRS lien showing up), but during the gap period, the IRS files its lien. Your title would then be subject to the amount that was owed by your seller to the IRS. Without a title insurance policy, you could be forced to pay this sum when you sell or refinance your house.
Another thing that is covered (which is not easily found from a search of the public records) is fraud and forgery. A recent real estate scam has been to file a deed from the true owner by a forged deed into a new name. The fraudster then lists the property at a below market price and sells it to an unsuspecting buyer.
The buyer then comes down to Florida to spend some time in their vacation home, only to find the true owners already there! Without title insurance, the unsuspecting buyer could be without a house and without the money they paid. With title insurance, they can be made whole.
A final example (by the way, the list is endless) is human error. Although title examiners are highly trained and knowledgeable, they are also human. Humans make errors. All the time. I cannot tell you how many times I have reviewed a title commitment that did not call for a mortgage to be satisfied, when my client the seller has already given me the information that I needed to obtain an estoppel letter from their lender!
If the mortgage is not set forth in the title search, and no title insurance is purchased, the only thing that the title insurance company is liable for is the cost of the search.
While it may seem to be a good place to save on closing costs, the actual cost of title insurance (which is paid one time and is good for as long as you own the property) versus the potential loss, makes this the second best deal at closing.
I recently read an article about how FNMA is being sued by the National Fair Housing Alliance (an advocacy group that represents fair housing interests, better known by real estate professionals as a “testing company”). It included a warning to realtors that work with FNMA on managing and selling its REO properties, noting that the NFHA had criticisms for some of the agents and brokers who listed the properties that it investigated, and that as the litigation progressed, they may bring some of those agents and brokers into the lawsuit as additional defendants.
“Under the Fair Housing Act, the person who owns the property, as well as anyone who has anything to do with it, has a liability,” Smith said.
“As this litigation progresses, some of those agents and brokers who have relationships with Fannie Mae could be named in the lawsuit. We don’t know who all of Fannie Mae’s brokers and contractors are, but we would love to be a friend to those agents who are trying to sell these homes, but can’t because Fannie Mae’s field service center left a bunch of garbage in the backyard.”
A lot of agents get caught up in trying to make a living, sometimes forgetting that companies like FNMA can get them into a lot of trouble, if they are not careful. You cannot escape liability by stating that FNMA told you to do something (or not to do it). If you are helping to manage the REO, and you don’t maintain a property in a predominantly minority neighbor in a similar manner to those in a predominantly white neighborhood, you could find yourself as part of this lawsuit.
Many years ago, I defended a friend who was accused by a testing company of racial steering. Despite the fact that I did not charge him anything, and we ultimately won a jury decision, his brokerage was ruined (the ongoing negative publicity hurt, as well as the time he had to spend on the defense of the action), his marriage was ruined (his wife, who is also a realtor, had been involved in some of the showings, and felt that it was her fault that he was being sued) and ultimately wound up filing for bankruptcy protection and moving out of state to start life anew. Remember, this is after winning and after not having to pay legal fees that could easily have run fifty to sixty thousand dollars!
The most revealing thing that I remember about that situation was the attorney for the testing company telling me during settlement negotiations “You should tell your client to pay us $10,000.00. The realtor never wins these things, and it will be cheaper in the long run.” While his statement was true, I am proud that my friend stood up for his principles, even though it pretty much cost him everything.
 See, Amy Swinderman, Fannie Mae Discrimination Lawsuit Could Have Repercussions for Agents, Inman Edition, 12/06/2016 at
Peter J. Pike, Esq. is approved by the Florida Realtors Association to provide instruction on Core Law subjects to Florida Realtors.