Title Insurance a MUST or a BUST

Buying & Selling Real Estate
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Title Insurance a MUST or a BUST

Shawn AckermanPro Member
Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes

If the inspection goes well tomorrow I will be buying a property from a wholesaler(cool person) and I wanted to know if I should get title insurance.  I'm buying the property cash and will most likely be putting a mortgage on it after purchase(unless i hit the lotto first).  I wanted to know two things.

I'm going with the wholesalers title company.  She seems to run a tight operation but I'm still a little apprehensive.  Thoughts?

Should I get title insurance?

Well three questions lol!!!  While doing my due dilligence i found out that the seller owes back money to the local water work to the tune of $1,500.  I was told by the representative that the back money was added to the taxes for the 2016 tax year(No goood) and the outstanding amount stays with the property.  I say all of that to say, Is this the job of the title company to make sure this is resolved before the transfer takes place i.e. closing or do I need to add this as a contingency in the contract?

Thanks for the HELP!!!!!!!!!!!!!!!!!!!!!!

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David O
Investor · Detroit, MI · Member since 2012 · 119 posts · 64 votes
10y

I used to work for a title company dealing with all sorts of title issues-100% yes, get title insurance. Regarding title issues - you won't get title insurance without clear title. So any title defects (liens, judgments, deed issues) will be resolved with the transition. Either paid by seller or you depending how you have it set up.

Title companies use large title underwriters for title insurance (Fidelity, First American, Stewart), so any title issues when you go to refi or sell will be insured through them. With title insurance you are 100% protected. 

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  • David O
    Investor · Detroit, MI · Member since 2012 · 119 posts · 64 votes
    10y

    I used to work for a title company dealing with all sorts of title issues-100% yes, get title insurance. Regarding title issues - you won't get title insurance without clear title. So any title defects (liens, judgments, deed issues) will be resolved with the transition. Either paid by seller or you depending how you have it set up.

    Title companies use large title underwriters for title insurance (Fidelity, First American, Stewart), so any title issues when you go to refi or sell will be insured through them. With title insurance you are 100% protected. 

    2Reply
  • Shawn AckermanPro Member
    OP
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    @David O Thanks for the heads up.  I was wondering how important it was.  I remember when buying my primary the lender said that it was required however since I'm not using a lender, at least initially I wasn't sure.  Thanks for the insight, greatly appreciated.

    0Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    Absolutely! I would never, ever buy a property without title insurance. You never know what kind of things may lurk in the background.

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  • Shawn AckermanPro Member
    OP
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    @Michaela G. It make sense to hear someone being very passionate about it.  Both you and @David O have helped put me at ease.  Additionally, Is the job of the title company to resolve any back utility bills?  I know that things like mechanic liens or mortgage liens have to be straightened out before title transfer but if the water work did not put a lien on the property is that something the title company would step in and say to the seller "This has to be paid?"  wasn't sure about that.  Any insight would be appreciated.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    If you're buying with 'clear title', then any liens will have to be paid at closing. Check your contract. Since the wholesaler said something about water liens staying with the property, that makes me wonder, if they expect you to pay them and have it written that way in their contract.

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  • Shawn AckermanPro Member
    OP
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    thanks @Michaela G.,  It wasn't the wholesaler who told me about the back water bill amount I found that out on my own by calling the local water works company.  They spilled the beans.  I guess I should write that into the contract?

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    If your contract states, that you're buying with 'clear title', then there's nothing to worry about. It's up to the closing agent to get together all of those numbers (water is a standard inquiry) and pay them at closing. Should they overlook anything, then that's what title insurance is for.

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  • Lee L.
    Investor · Los Angeles, CA · Member since 2014 · 285 posts · 142 votes
    10y

    @Shawn Ackerman Absolutely yes! Especially if you're buying from a wholesaler, there are weird bills in arrears attached to it, and you are paying cash. It's not that much money considering how much risk you're taking on if moving forward without it. It's funny how seemingly cool people can suddenly turn a 180 once money is involved.  

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    I typically get title insurance on properties that have been foreclosures, estate sales, or if the property was built a long time ago. I typically do not get it on a condo (unless it was a foreclosure or estate sale at some point), I typically do not get it on homes that were built fairly recently (again unless it meets the previous criteria.).

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  • Shawn AckermanPro Member
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    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    Thanks @Michaela G. the contract doesn't use the language "clear title" however it does state that any liens, encumbrance and or special assessments must be paid prior to close, however if the water works did not put a lein on the property which I don't think they did(They simply added the amount of arrears to the upcoming year tax bill) then is that something the title company will check?  I see that you said that's something the title company looks into so that's great.  I guess I can call them and make them aware that I know this information.  @Lee L. thanks for "Thirding?" that motion on getting title insurance.  I will definitely get it.  The cost is $375 + an additional $3 as the property falls into the $0-$100,000 category.  I know all about the 180, trust me but I do have a certain level of respect for a fellow bigger pocket member.  I met the wholesaler on BP.

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  • Shawn AckermanPro Member
    OP
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    Thanks @Russell Brazil for the insight.  Good to get perspective from a fellow realtor and investor.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    It really doesn't matter where you met the wholesaler. Anybody can sign up at BP and just because they're a member does not mean in any way that they're reputable. 

    2Reply
  • Shawn AckermanPro Member
    OP
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    @Michaela G.  I like your spirit!!!!  And you are absolutely correct.  Too much to lose here so I will make sure that all of the I's are dotted and T's are crossed on this issue.  I appreciate the honesty and input.

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  • John M.
    Real Estate Investor · San Diego, CA · Member since 2016 · 15 posts · 6 votes
    10y

    Shawn --- you won't get a bank or Federal loan without Title Insurance. When you apply for a loan on the property the bank or broker will automatically add Title Insurance to the Disclosure form. If you tell him or her to take it off they just won't do business with you. 

    Title Insurance is essential because it insures you (and the Lender) against any previous owner who may still have an ownership interest in the property. It also protects you against someone who may try to sell a property he doesn't own or hasn't got clear title. 

    There are two types of Title Insurance --- Buyer's/Owner's Title Insurance and Lender's Title Insurance. Buyer's/Owner's Title Insurance covers you, the owner or borrower against a loss. Lender's Title Insurance cover's the Lender from any loss due to Chain of Title. 

    When you get a loan there will be both policies. However if you have just gotten Title Insurance at the time of purchase then get a loan shortly thereafter  you probably wouldn't have to get it again for the loan. 

    If you get the loan at the same time as you get ownership then you should get Title Insurance to protect yourself.

    Chain of Title can be long, going back 100 or 200 years covering all the previous owners. If some descendant from a previous owner finds he has inherited a portion of your property through a faulty Chain of Title then you will have to adjudicate a settlement that may cost much more than Title Insurance --- a one time fee.

    If you had Title Insurance in the example above then the Insurance Company would cover your expenses to recover in court or compensate you for the money you paid to buy the property. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Shawn Ackerman  think of it this way.

    you don't need it until you need it...

    I have bought plenty of properties without it.. however I always got a title commitment or did my own date down and new what was there.  However I have a pretty decent amount of time at this and a few transactions under my belt, so to a certain extent I have some expertise at this.. plus I can afford to lose a property if it came to that  :) 

    But basically you want title insurance.. probably never use it .. but when you need it you need it.

    HUGE red flag with all these folks in the RE business that are wholesaling they have no fiduciary to you...they have no license to protect so if you know what this term means

    Caveat Emptor its that to the extreme in these situations of buying from private parties.

    And I see many folks on the auction sites like bid for assets that will only give a quit claim that is another red flag

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  • John M.
    Real Estate Investor · San Diego, CA · Member since 2016 · 15 posts · 6 votes
    10y
    Originally posted by @Shawn Ackerman:

    Should I get title insurance?

    Well three questions lol!!!  While doing my due dilligence i found out that the seller owes back money to the local water work to the tune of $1,500.  I was told by the representative that the back money was added to the taxes for the 2016 tax year(No goood) and the outstanding amount stays with the property.  I say all of that to say, Is this the job of the title company to make sure this is resolved before the transfer takes place i.e. closing or do I need to add this as a contingency in the contract?

    Thanks for the HELP!!!!!!!!!!!!!!!!!!!!!!

    Title Insurance includes a Title search that will uncover all existing liens on the property. The Seller can be required to pay or clear all outstanding liens as a condition of Sale. In the West this is done by an Escrow office, in the East by a lawyer.  IF the Seller can't pay the monetary liens then you can offer to reduce the Selling price to cover the unpaid liens. You would then apply that amount to paying the liens. This can be done through Escrow or a lawyer depending on your location.

    0Reply
  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
    10y

    @Shawn Ackerman

    Welcome to BP. 

    One simple answer, in fact, there is NO other answer, but

    "You must get title insurance".

    I could share a story here again as I have shared one already on BP in one of my previous posts.

    Hope it helps.

    0Reply
  • Peder Moore
    Whittier, CA · Member since 2013 · 11 posts · 1 vote
    10y

    Personally it was 100% the best 1000 dollars I have ever spent in my life. 

    I hope I can put into words the whole story.........

    My wife and I bought our primary residence in 2009. It was a foreclosure and an awesome house for a "starter home" it was a great deal and we just were lucky to buy when we did. About 7-8 months later I came home to a notice of sale on posted on my door. This was long before I thought about real estate investing and being young and dumb I discarded it and didn't think anything about it. About 8 months later I came to a notice from a company saying they had bought our house at an auction, call this number, get ready for an eviction etc etc. I called the number very confused and was spoke to a rude gentleman saying yes I bought your house at an auction and called me by the previous owners name who had been foreclosed on. I told him he had the wrong guy and I called our realtor who got us in touch with our title insurance and it turned into a 2 year legal mess.......

    Long story short the previous owner who had been foreclosed on had taken out a Heloc from a large national bank. The bank had the position that they wanted their money "around 60,000" from the HELOC and the loan was not reconvened when the foreclosure took place. Basically there was one box that was not checked stating that the loan was closed. Meanwhile the company that bought our house at the auction filed an unlawful detainer against my wife and I. There was three main parties: my wife and I, the company who bought our house and the national bank who wanted their money from the HELOC.

    Fidelity the company that "underwrote our policy" was amazing! They got us great legal representation that put a hold on the unlawful detainer. They asked the national bank to undue the sale  basically let it go, they refused and hired a lawyer to defend the company.

    Fidelity payed off the company that bought our house. They did a  quit claim deed back to us and got one party out of the picture. They did so all while being very clear to the national bank that we would sue them for damages because the entire time our position was that it was an illegal sale and the Heloc was legally  reconvened during the foreclosure prior to us purchasing the property. 

    This all took about two years to sort out......CA can take forever for the court system to finish. When we finally had the trial the judge took one look at our case ruled the sale illegal and allowed my wife and I to sue for emotional damages and Fidelity to get there money back and lawyer fees (which I don't even want to know).

    The bank quickly settled and we got a small settlement which after taxes was soooo not worth it. Fidelity received some compensation as well.

    At the end I was so thankful for our amazing lawyers, fidelity for defending us and my wife for not killing me for throwing the notice on the door! I was an idiot and it could of turned out very bad for us..

    1Reply
  • Ellie Hanson
    Investor · Portland, OR · Member since 2015 · 119 posts · 78 votes
    10y
    Good questions I've also wondered about. What annoys me and the thing I don't understand is when I buy a house I pay for title insurance and 6 months later I have to pay again as the seller. Why do sellers have to pay? Shouldn't I get a discount on the second transaction as they *just* did all the research not 6 months earlier??
    1Reply
  • Lee Scarlett
    Jacksonville, FL · Member since 2015 · 280 posts · 53 votes
    10y
    Originally posted by @Ellie Hanson:

    Good questions I've also wondered about. What annoys me and the thing I don't understand is when I buy a house I pay for title insurance and 6 months later I have to pay again as the seller. Why do sellers have to pay? Shouldn't I get a discount on the second transaction as they *just* did all the research not 6 months earlier??

     Hmmm Ellie,

    interesting question you have. I thought that you buy title insurance at the time of purchase to protect you in a situation as mentioned in another post above. As I understand it, if you try to get financing then you need to but it again but this time in behalf of the lender.

     As for the discount part of your question, yes, if buying the second title insurance (for a lender), you should be getting a discount is w I'm told. I haven't seek financing after purchase so far tho.

    If you're selling, I think the buyer now would need to be concerned about chain of title issues (not you the seller). But I'm not 100% sure and hope a more experience BPer chimes in.

    Best of luck!

    0Reply
  • Matthew Forbes
    Westport, MA · Member since 2015 · 128 posts · 56 votes
    10y

    I had a house with a title dispute and Fidelity National ended up defending me in a suit for free.  It cost them 25K (better than the 200K) to buy my house.  To me it's a no brainier.   I have seen the other side of the argument that if you do a lot of deals then it is a net loss over time.  For me it's totally worth it.

    0Reply
  • John M.
    Real Estate Investor · San Diego, CA · Member since 2016 · 15 posts · 6 votes
    10y
    Originally posted by @Matthew Forbes:

    I had a house with a title dispute and Fidelity National ended up defending me in a suit for free.  It cost them 25K (better than the 200K) to buy my house.  To me it's a no brainier.   I have seen the other side of the argument that if you do a lot of deals then it is a net loss over time.  For me it's totally worth it.

     Well said Matthew. Everyone should understand one thing. There are many Title Insurance companies, the majority have been in business for decades (some perhaps a century) --- there is a reason they haven't gone bankrupt and out of business. Now you know the reason too.  ---- I know what you're thinking --- and the answer is "no" I do not and never have worked for a Title Insurance company nor have I ever received monetary compensation from a Title Insurance company. However in the interest of full disclosure I have received numerous Friday cups of Starbucks coffee and donuts from Title Insurance companies.

    0Reply
  • Alfredo Ollivierre
    Real Estate Investor · Arlington, TX · Member since 2015 · 4 posts · 0 votes
    10y

    so to be clear, I need title ins. And property ins when buying properties, correct?

    0Reply
  • Joe Moore
    Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
    10y

    There is no way on this earth that I would buy a home without title insurance.  Kind  of like a high flying aerobatic act without the safety net.  You can go along for years without one.  Then there is that one time you miss the bar or other person's hands.  You coming down thinking, "IF I COULDA SHOULDA".  I should have taken a little more precautions.  Don't let that be you!  Title insurance is as important to real estate as looking where you going when driving.

    0Reply
  • John M.
    Real Estate Investor · San Diego, CA · Member since 2016 · 15 posts · 6 votes
    10y
    Originally posted by @Alfredo Ollivierre:

    so to be clear, I need title ins. And property ins when buying properties, correct?

     Yes!! Title Insurance will protect you from Chain of Title errors and omissions including compensation for your loss if the home is taken from you because of a Title defect. Property Insurance protects you from Fire, Earthquake, Floods and Liability law suits. Title Insurance is relatively more expensive than Property Insurance but you only need to purchase it once until you Buy another property. Property Insurance has to be bought every year you own the premises. 

    There is a big difference between the risks associated with each type of Insurance and companies have naturally specialized in one or the other.

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