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.
Peter J. Pike, Esq. is approved by the Florida Realtors Association to provide instruction on Core Law subjects to Florida Realtors.