Title Insurance?
March 23, 2010 4:19 AM   Subscribe

Buying a home in Northern Virginia. Closing costs include Lender's title insurance for $2600 and Owner's title insurance for $1000. Do I have to purchase Owners title insurance? We are purchasing from original owner in an established community (25 year old home)
posted by cactus86 to Work & Money (14 answers total)
Title insurance is protection against a number of things that are perfectly possible with an original owner in an established community. Things like overlooked mortgages (on a home equity loan, for instance), access/easement/encroachment disputes. I doubt that it is required, but it is probably a very good idea.
posted by yclipse at 4:38 AM on March 23, 2010 [1 favorite]

Considering the huge amount of risk possible with real estate mistakes you would be exceptionally foolish to skip on it. The title needs to be clear and the property boundaries clearly defined and officially recorded. Otherwise you risk losing quite of lot of money should disputes arrive. Title guarantee companies exist to make sure this doesn't happen. I do wonder about the amount of those fees, however. You might want to contact a title company on your own to see what's usual and customary for the area.
posted by wkearney99 at 5:35 AM on March 23, 2010

Odds are your mortgage company won't give you the mortgage with the title insurance.
posted by COD at 5:39 AM on March 23, 2010

COD, the poster specified that Lender's and Owner's Title Insurance are separate costs, the Lender's insurance is all that will matter for the mortgage.
posted by atrazine at 6:26 AM on March 23, 2010

You can pass up the owner's title insurance but I wouldn't; with property values the way they were a few years ago, you have no idea whether the previous owner took out a HELOC and blew it all on booze and hookers, and you'll have no way of knowing until someone knocks on your door and serves you papers.

A thousand bucks to completely eliminate the risk (with no time limit on when something might surface) strikes me as a pretty reasonable premium. I paid a similar amount on my house, also located in NOVA and about the same vintage, last year.
posted by Kadin2048 at 6:54 AM on March 23, 2010

Yeah, title insurance is pretty much a no brainer. The investigate the title and certify that it is clear and can be sold. In doing so, they insure you against suffering a loss if they screwed up.

It wouldn't be pretty to think you held title to a house and have been paying a mortgage on it, and find out that someone else held a lien and you owe them part of your house.
posted by gjc at 7:05 AM on March 23, 2010

On the one hand, losing your house or some large chunk of its value "wouldn't be pretty" at all. On the other hand, title insurance is a scam. Premiums are ridiculously high in relation to payouts, and there's a general lack of competition. In many states, it amounts to additional compensation for the closing attorney, with kickbacks spread liberally around the table.
So you may want to weigh your risk-aversion against your aversion to being taken advantage of by the system. You can also consider that, while you aren't directly protected by your mortgage lender's title insurance (which you have no choice about paying for), you are indirectly protected by the due diligence that the bank's lawyer will do before issuing the lender's title policy.
posted by Jasper Fnorde at 7:26 AM on March 23, 2010 [1 favorite]

Title insurance is insurance. It has been ably described above. What hasn't been covered is just who is protected. By buying a lender's policy, you are protecting the lender against loss. Just as when you buy life insurance on your wife, it doesn't cover you. The owner's policy covers you. If someone came out of the woodwork and seriously affected the value of your title, simply having a lender's policy will not protect you. For an extra thousand bucks, spread over even five years, it is about the cost of a newspaper each day.
posted by Old Geezer at 7:47 AM on March 23, 2010

I know a couple who skipped it because of the cost.

Seven years later, an attorney showed up, representing some guy who specializes in buying up old easements.

It took them years to work it out, and they spent way more than the original cost of the insurance.
posted by Irontom at 9:24 AM on March 23, 2010

I'm in a similar position to you (will close in a month, required to buy lender's title insurance, owner's title insurance optional). I am leaning towards not buying it. I might pay a couple hundred dollars, but probably not the $700 it would cost. I think the possibility of a major issue is remote, there are other safeguards which partially protect me from title issues (eg. the contract itself, the searches the lender's title company will do), and I'm just more comfortable taking on the slight risk of a problem than I am giving up $700. Obviously someone who is much more risk averse than I am should buy it.
posted by deadweightloss at 10:29 AM on March 23, 2010

A co-worker is trying to expand her private, family owned business by putting an addition on the building. Problem? Turns out that the original survey for the plot makes no sense. The description of the dimensions is physically impossible.

The family didn't buy title insurance when they purchased the property and now they've spent years, money, and time trying to figure out just who owns the section they want.

Just a cautionary tail.
posted by sbutler at 11:10 AM on March 23, 2010

Title insurance is a scam but unless your state has a decent title system, you're pretty much stuck with it.
posted by the christopher hundreds at 5:20 PM on March 23, 2010

While I would recommend an Owner's policy, the premiums you quote seem pretty high. While the bank can require title insurance, you do have the option of selecting the title insurer. I would shop around and see if I could get a simultaneous rate, a discounted rate for getting an Owner's and Lender's policy at the same time. Most times, it is only an additional $75 to $150 for the second policy.
posted by kruddup at 8:30 PM on March 23, 2010

It's a scam, but often, a legal one. Used to do this sort of thing by researching a title, and getting a title company or lawyer to sign off that the title was clear. But the title insurance companies lobbied and got states to pass laws requiring the insurance.

I only know this because when I sold a house I owned, I suddenly had to pay for insurance. Mind, I had read the abstract of title myself, as well as had a lawyer bless the title when I bought it. Didn't matter, had to buy the stupid insurance. It does afford some protection, but it's still a scam.
posted by Goofyy at 5:46 AM on March 24, 2010

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