Am I obligated to buy Owner's Title Insurance in WA

15 Replies

Hello all-

I am buying a personal residence in Seattle, Washington this week. I received my HUD form on Friday.

The HUD defaulted to include a ~$1,940 Owner's Title Insurance policy. I told my agent that I would rather NOT pay that amount, and instead keep the funds as cash. (Basically a 'self-insurance' strategy.)

My RE Agent said that WA law **requires** that I get the policy, and so I am not allowed to keep the cash.  

Can anyone help me find out whether this is true?  My Agent seems educated on the market, but she also sounded as though she'd never run across this before.  

Thanks for your input.  

-Drew

I know NY state doesn't require it but an estimate always included on the HUD anyway. Can't speak to Washington law, but I've never heard of such a thing.

If you're getting a mortgage, your lender will require it, for good reason.  If paying cash it's not required, but generally foolish.  While rare, there a 100 different things that can pop up down the line.

@WayneBrooks - my lender requires me to get LENDER'S title insurance, but (on prior rentals that I've purchased) I have not been required to get OWNER'S title insurance.  

The question here is regarding insuring my ownership (clean title) to the home.  

If I remember correctly from our Vancouver, WA, home purchase (don't have my settlement statement in front of me), the seller pays there for the owner's title policy in WA.   So are they asking you to pay the $1940 and you would rather keep the money and have no owner's title?  Or is the seller paying the $1940, but you're asking that instead it be paid in cash to you rather than the title insurance company?  If the seller is paying for it, I'm not sure they would be obligated to pay you cash instead if you choose to deny the coverage.  

I don't always buy it. Common 'wisdom' is that it's cheap insurance and a good buy. I disagree. First off, the atty gets a lot (like 3/4) of that premium for selling it to you, so they sell it pretty hard. For some reason people believe them. I always look behind the curtain when someone giving 'advice' makes money if I do what they suggest. Second, they aren't that great at handling claims when they come up.

I generally look at the title history, if there's a bank that offered a warranty deed I can go back on I generally don't worry much. Hell, I don't worry much anyway. If they're willing to write the policy, they've looked it over and decided the risk is very small. I've done a quiet title action or two, not really anything to lose sleep over.

I can't imagine there being a law requiring you to buy it. Lender requirement maybe, but not a law.

@Andrew Kniffin  I would scoff at the price tag and insist on other options, but I would not skip getting an owner's title policy.  You didn't mention the price of the property, but rates on those run around 10% of that amount for for every 50k of coverage here in LA.

You say you want to self insure, but $1,940 is what you're "saving" to cover the purchase price of your house and the legal expense of defending your right to the title - I don't think that equates to self-insurance.  Not considering your other assets, the $1,940 is no insurance.

It is a one time premium insurance policy that lives beyond the life of your ownership of the property.  I assure you, I am not an advocate of over insurance or wasteful buying unnecessary insurance.  In my experience, it is an extremely cheap insurance product, but I'm sure, like everything else, there are places where that's not the case.  Insurance is regulated state to state.

Whoa, $1940 for Owners policy On Top of the lender policy??  I was thinking cash purchase and you were inuring the full value, but you're only insuring the equity, basically.  I generally buy it on a cash deal, but with a lenders policy in place, they'd cure any defects, which almost never, never costs any where near the value to cure.  I'd likely pass, but would want to verify the fee.

its customary but not mandatory in WA for the seller to pay for the owners policy  as the seller is the one saying they have clean title you should buy my property.

Lenders policy is paid for by the borrower and required by any lender I have ever heard of.

When we are swapping around cheap mid west or south properties that have no debt its not uncommon to not buy title insurance if your familiar with the property.

title insurance like has been said can be very tough to execute on when a claim comes up typical insurance companies sometimes you really have to fight ... but if you need it and your covered its very cheap insurance.  We have made claims over the years ... and some big one's that were paid out.. so for me I would only pass on title if it was a very low value asset.. which a WA rental probably is not.

There's no such law that I know of requiring title insurance for the buyer.  I'd ask that person to cite state law that says title insurance is required upon purchase.  Sounds so much like the kind of stuff agents say.  Ask your escrow officer.  Escrow here in the West is a service to sell title insurance.  They'd love it to be law for everyone to have to buy, but know that it is not.

I'm not sure you are right about your lender's requirement to buy/pay for only lender's title.  Lenders require borrowers to be title insured against possible title claims, just like they require that you have fire insurance.  The collateral is at risk if the borrower is uninsured.

@Dion DePaoli  maybe can chime in on that.

In CA, title policy prices are regulated so there's no getting a deal or shopping around that I know of.

The trouble with going without title insurance isn't just about possible claims.  If you do an uninsured transfer, you'll not be able to sell or refi without title insurance in the future. You might as well get it now so that all transactions going forward will be from an insured transfer.

If you want to know the law in WA state, look up the code or have your agent provide it for you. Most of your responses here on BP will be from out-of-state residents who are laypersons (non-attorneys), like myself.

I've purchased plenty of properties without benefit of title insurance, however a few caveats. I'm in CA and only buy in CA. I'm a seasoned investor and can afford to underwrite my own risks and have had to clear many title issues over the years. Lastly, I'm a serious student of title laws and have positioned myself to be somewhat of an expert to the legal community in my state, so I probably have an advantage that most would not.

As Wayne Brooks and others have already stated, acquiring a property with a loan will most certainly require a lender's policy which may not even be offered for a purchase without a corresponding owner's policy. Expecting a cash rebate (versus a credit) after closing is probably not going to be acceptable to your seller since it is customary for most transactions involving a licensed broker. This may also involve listing or selling brokers' licensure or even E&O insurance.

If you want to buy property without benefit of owner's policy, although an unwise proposition for an inexperienced buyer, consider buying off-market (unlisted) property directly from a seller without using a broker/agent.  

Brokers and agent who wish to shoot arrows should be reminded that the notched side goes on your end of the bow.

There is no law that requires title insurance for an owner in any state.  I believe in Washington it is customary for the Seller to pay for the policy in whole or in part.  In some states, this is offered/done to control the title company selection.  If I pay, I choose, sort of thing.  

If financing is involved, the Lender will require a Mortgagee policy.  While I am not positive there is a definitive requirements for an owner to also purchase insurance, it will likely cause all sorts of confusion in the origination process.  Have loans closed with no owner's title insurance policy?  Yes.  Is it a smart practice?  No.

As stated, $1,940 held in reserve is of no consequence to contests on title.  That is not an amount that would really pay for much if certain claims were made on title.  

It is difficult to judge if the amount is proper or not since the sale price of the property is not included in the post.  Title insurance, like all insurance is regulated and most insurance companies have to turn their rates into the state.  

With this being a primary residence, the recommendation is you should purchase and owner's title insurance policy.  It is one of those things that when you needed, it is pretty darn handy and if you don't have it if you needed, you could loose your property or have to come out of pocket for a much larger sum to cure the claim.  Penny wise, dollar silly, sort of thing.

Originally posted by @Rick Harmon:

As Wayne Brooks and others have already stated, acquiring a property with a loan will most certainly require a lender's policy which may not even be offered for a purchase without a corresponding owner's policy.  

I buy plenty of stuff without owner's title, but there are no secured lenders involved.  Putting aside who pays for which policy, I'm pretty sure an owner occupant buyer getting a loan won't be able to close without both a lender's and owner's policy. Maybe it's the lender requirement, maybe the title company doesn't' sell the products separately. But I've never seen it happen on a retail sale with a newly originated home loan.

@Dion DePaoli  

Kristine Marie Poe 

The home purchase price is $850K.  I'm getting a 90% loan. 

I appreciate everyone's input. Unfortunately, I received this information "late in the game" and so, to close on time, am not able to make any changes to the HUD, even if I wanted to.

But this is an interesting discussion b/c there is so much confusion on it.  My RE agent had a different answer than the Title Company, and there are other angles on it here. 

In general, this feels like a "racket" to me -- perhaps it's something that ought to be discussed further in the forums, or in a BP podcast.  Has a Closing Agent/Title Co ever been interviewed in a podcast before?

@Andrew Kniffin   An email from my escrow officer at Chicago Title, with 15 years escrow experience:

I have never had an escrow close without owners policy when there is a lender involved. Owners policy in this county is usually paid by seller and lenders policy by buyer.

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