Title Insurance. What is it good for?
March 16, 2018 8:17 AM Subscribe
Selling a condo in Orange County, California. Section 7.C.2 of the contract references "owners title insurance", which our agent says will cost around $1,400. I understand why the buyer and/or lender would want to get proof of title and insure against risk that there are some issues. But why should we as the owners get title insurance? The title was clear when we bought the place a couple of years ago; what could have possibly changed to affect that?
More: I realize that this section gives you the choice of whether the buyer or seller will pay this insurance. I already had to educate our agent that different counties have different practices, and that there is no state-wide standard. I guess the question is, can I decline to pay for this and what bad thing could possibly happen if there is no owners title insurance?
More: I realize that this section gives you the choice of whether the buyer or seller will pay this insurance. I already had to educate our agent that different counties have different practices, and that there is no state-wide standard. I guess the question is, can I decline to pay for this and what bad thing could possibly happen if there is no owners title insurance?
The list of things which could have changed is almost endless, for example a claim of a lien, a claim of title by someone else, a recorded transfer of title interest whether fraud or actual, etc., etc. etc. In selling you are warranting good and clear title except as may be stated in your conveyance. You can be responsible for any costs or losses arising from claims against that title, and they may already exist or arise later.
posted by uncaken at 8:29 AM on March 16, 2018 [5 favorites]
posted by uncaken at 8:29 AM on March 16, 2018 [5 favorites]
Lenders uniformly require title insurance that covers the lender in case of title issues. This insurance policy will cover the balance of the mortgage (ie, it is probably not for 100% of the value of the home). Buyers optionally can buy title insurance that covers the remainder of the value of the home, and optionally other add-ons (for instance, sometimes easements are covered, which lenders don't care about). By convention, the seller buys the lender's title insurance policy. If the buyer wants title insurance, they (generally, but not always) buy it for themselves.
So, you are buying the lender the lender's title insurance. It's not for you.
posted by saeculorum at 8:31 AM on March 16, 2018 [3 favorites]
So, you are buying the lender the lender's title insurance. It's not for you.
posted by saeculorum at 8:31 AM on March 16, 2018 [3 favorites]
IAAReal EstateL, IANYReal EstateL.
Second Karaage. In my jurisdiction, "owners title insurance" means a policy that will cover the new owner, rather than the old owner who is conveying or selling the property.
I already had to educate our agent that different counties have different practices, and that there is no state-wide standard
It doesn't matter whether other counties have different practices. What is the practice of the county where the property is located? That's the standard your response will be measured by.
Gently, I'd suggest that it sounds like you may need a new agent, because your agent seems like a poor fit for you. They should have been able to explain what an owners' policy is, what the local practice is, and why it matters in about 30 seconds.
posted by joyceanmachine at 10:27 AM on March 16, 2018
Second Karaage. In my jurisdiction, "owners title insurance" means a policy that will cover the new owner, rather than the old owner who is conveying or selling the property.
I already had to educate our agent that different counties have different practices, and that there is no state-wide standard
It doesn't matter whether other counties have different practices. What is the practice of the county where the property is located? That's the standard your response will be measured by.
Gently, I'd suggest that it sounds like you may need a new agent, because your agent seems like a poor fit for you. They should have been able to explain what an owners' policy is, what the local practice is, and why it matters in about 30 seconds.
posted by joyceanmachine at 10:27 AM on March 16, 2018
I would classify it as "part of closing costs," which the seller customarily pays. It might, very theoretically, be a benefit to you to have it, as I suppose you could be sued if some defect were later found in the title, but the insurance really primarily benefits the lender and the buyer, probably in that order.
posted by randomkeystrike at 10:39 AM on March 16, 2018 [1 favorite]
posted by randomkeystrike at 10:39 AM on March 16, 2018 [1 favorite]
Who pays what is negotiable in California (and other states, I presume).
According to one resource, it is traditional in Orange County for the Seller to pay the Title Insurance.
posted by China Grover at 10:45 AM on March 16, 2018
According to one resource, it is traditional in Orange County for the Seller to pay the Title Insurance.
posted by China Grover at 10:45 AM on March 16, 2018
To answer the last part of your question, the bad thing for refusing to pay for the title insurance is that this particular buyer may say no. As noted above, the lender will almost certainly require that SOMEONE picks up the tab, but the particular who is negotiable.
If you don't want to pay for Title Insurance (I do not like to have Sellers pay Title Insurance, but I usually bow to custom), then make that clear to your Agent, who should inform potential buyers of that, and may even advertise it as such (on the MLS, for example, as a mandatory condition of sale). Be warned, however, that this may be deemed unreasonable by other agents, who may either steer clear of a potential problem seller or reduce your offers to make up for the extra costs.
The "Problem Seller" above means that you may be unwilling to negotiate on repairs, another traditional part of the sale, or other matters. Generally, condos are a dime a dozen, so YOUR condo may be devalued if this is advertised.
If this is advertised to you like this, you can Counter that they pay, or you can accept it, or reject it. You may also want to look at your purchase documents, to see if the Seller before you paid for Title Insurance.
Good luck!
(IAAL, IANYL, TINLA)
posted by China Grover at 10:55 AM on March 16, 2018 [1 favorite]
If you don't want to pay for Title Insurance (I do not like to have Sellers pay Title Insurance, but I usually bow to custom), then make that clear to your Agent, who should inform potential buyers of that, and may even advertise it as such (on the MLS, for example, as a mandatory condition of sale). Be warned, however, that this may be deemed unreasonable by other agents, who may either steer clear of a potential problem seller or reduce your offers to make up for the extra costs.
The "Problem Seller" above means that you may be unwilling to negotiate on repairs, another traditional part of the sale, or other matters. Generally, condos are a dime a dozen, so YOUR condo may be devalued if this is advertised.
If this is advertised to you like this, you can Counter that they pay, or you can accept it, or reject it. You may also want to look at your purchase documents, to see if the Seller before you paid for Title Insurance.
Good luck!
(IAAL, IANYL, TINLA)
posted by China Grover at 10:55 AM on March 16, 2018 [1 favorite]
Best answer: You say title was clear when you bought it; the danger to the buyer is that you are wrong and it wasn't clear, in which case they might end up not owning a house.
Yes, the American property system is bonkers and, in case you're wondering, this is pretty much a uniquely American thing.
posted by Tomorrowful at 12:25 PM on March 16, 2018
Yes, the American property system is bonkers and, in case you're wondering, this is pretty much a uniquely American thing.
posted by Tomorrowful at 12:25 PM on March 16, 2018
> In my jurisdiction, "owners title insurance" means a policy that will cover the new owner, rather than the old owner who is conveying or selling the property.
The term is intended to differentiate “lender’s title insurance,” which is intended to protect the lending bank but which does nothing to protect the buyer. Owner’s title insurance is written to protect the [new] owner.
The theory behind having the seller pay for title insurance is that the seller has the obligation to convey marketable title and the policy guarantees it. To some extent, then, the policy does protect you as the seller because, as was stated above, you might think that your title is solid but you might be wrong. It covers, not only ownership issues, but also such things as easements. If there is a garage or shed that overlaps a boundary line, that provides additional protection.
posted by yclipse at 8:18 PM on March 16, 2018
The term is intended to differentiate “lender’s title insurance,” which is intended to protect the lending bank but which does nothing to protect the buyer. Owner’s title insurance is written to protect the [new] owner.
The theory behind having the seller pay for title insurance is that the seller has the obligation to convey marketable title and the policy guarantees it. To some extent, then, the policy does protect you as the seller because, as was stated above, you might think that your title is solid but you might be wrong. It covers, not only ownership issues, but also such things as easements. If there is a garage or shed that overlaps a boundary line, that provides additional protection.
posted by yclipse at 8:18 PM on March 16, 2018
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Whether you pay for it is a different matter.
posted by Karaage at 8:27 AM on March 16, 2018 [3 favorites]