Total newbie - need help with title insurance

[Linda N.]

Hi, I purchased a house next door to my home.  It was sold on the courthouse steps as a foreclosure by a substitute trustee.  I have watched this house and the deceased owners for years - the sons who inherited it could not keep up the payments on it.  I did not have a title search done before the purchase.

I contacted First American title about doing a search and purchasing an owner's policy.  They've sent me the documents (original title deed, subsequent refinance title deed, substitute trusteee's deed for the forclosure, and the deed that shows I purchased the house).  No outstanding debts were found, taxes paid.

However, the original owner's sons are still in the house. We are midway in the eviction process to take possession of the property.  I have had the deed registered with the county.

Sorry this is so long but this is what I can't figure out - why does the title company want me to sign a sellers/owners affidavit and indemnity that basically says that if there are no liens or other issues that might cause a problem down the road with the title, and that I would have no legal recourse with them for not finding the problem in their search?

AND

That there is a laundry list of evidence they want like proof that the notice of foreclosure was mailed with a return receipt, notice published 3x, evidence that the sale (to me) was compliant with laws, that the foreclosed upon (the deceased were named in the sale) had not filed for bankrupcy protection, and that the permises have been surrendered to me at the time of the recording of the substitute trustees deed.  All this is along with a list of other not so troublesome issues in Schedule B - Requirements (which I'm presuming are boiler plate).  Schedule B - Exceptions seem reasonable enough and not a problem.

AND

I'm wondering if I need the insurance part since they seem to be legally non-liable for anything that might emerge beyond what they have sent me details of and I have to sign the affadavit to seal the deal with the title company for insurance.  They want me to state (sign) that no activity has occurred in this house for the past year that might result in a lien - how would I know?  Actually, I have watched what has gone on at this house every day for the past year and there has been no construction so my guess is that this is not a problem but do they really expect me to attest to something that I cannot possibly know?

So very sorry this is so long - now you know how I've sort of stumbled into this situation.  I have the title search, do I need the insurance? Please help me understand so I'll do better the next time.

Many thanks.

[Rick H.]

Title companies are Insurance companies. They are in the risk business. 

They assign a certain degree of risk and charge fees to defend title based on their assessment of the risk. 

Essentially, since the passage of of the Decedent's estate IS NOT an isurable transfer itself, they will only insure what prior insured transactions they can identify in the chain of title.

I think you are overreacting to your perception of the risk associated with the indemnification. 

If you don't sign, the next title company will bury the exception to coverage in their policy anyway. The indemnification probably says that, if the Decedent's Son(s) later file a lawsuit, you will reimburse title company for defending title that you already have. Do you think those odds are high or low?

You already took the big step and risked buying the property. If you are truly concerned, negotiate with the holdover occupants and get them to sign an agreement (drafted by your attorney) giving them some money to vacate and include language that Barra any further claims regarding the property.

That's how you manage risk, perceived or otherwise.