Skip to content
Multi-Family and Apartment Investing

User Stats

21
Posts
7
Votes
Nana Sefa
Pro Member
7
Votes |
21
Posts

Owner’s title insurance - to get or not?

Nana Sefa
Pro Member
Posted Jan 3 2024, 13:02

Which of you get owner’s title insurance? And who doesn’t get owner’s title? Why do you get or not get? Thank you. 

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Jan 19 2024, 07:09

@Peter Walther 

*Fannie Mae, Freddie Mac and Voxtur Analytics Corp. raise their hands*

Ok actually though, here is why I think that system of easement recording is bad. Normal people should be able to understand their property. This guy very reasonably title searched his property and found nothing. If easements that need to be recorded just had to be recorded in a way that showed up on a normal title search of the property, that whole misunderstanding would have never come up in the first place. Allowing it to be otherwise created confusion for no advantage. 

On the AOLs, great article. Two comments, One is that nothing just shows up with a large body of law behind it. There is a feedback loop between a practice and the law behind it that builds up recursively. AOLs are just starting to be used more, if we never did anything that didn't have a large body of law behind it, we'd still be riding horses. That said, it's a legitimate consideration.

The thing that remains unclear to me is exactly how much risk the curative work removes for its cost. I still do not see the combined ratio as a legitimate measure of this. 

For example, let's say a consumer paid $1000 for title insurance. $800 goes to expenses like underwriting, which is enough to attract competent underwriters, $150 in claims, so a combined ratio of 0.95. 

But if the consumer paid $2000, and $1700 goes to expenses like underwriting, $150 in claims, the combined ratio would be 0.975. The combined ratio is higher even though the title insurer is bringing in the same profit and (!) the consumer has double the cost for 0% more risk protection. The combined ratio did not measure this, in fact it went up while the value to the consumer went down. 

A better measure might be looking at the results of people who do not have that preventative work done, perhaps who eschewed title insurance completely, and compare losses to the people who did. I don't know where to find that but I just keep thinking of Iowa which charges $175 per transaction for full title protection and free CPLs and operates at a profit. 

User Stats

3,364
Posts
3,293
Votes
Tom Gimer
Pro Member
  • DMV
3,293
Votes |
3,364
Posts
Tom Gimer
Pro Member
  • DMV
Replied Jan 19 2024, 07:09
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?


You'll probably get different answers here. 

A preliminary title report to me is simply a document showing who owns the property and what encumbers it (mortgages, judgments, liens, etc.). Also known as an O&E -- owner and encumbrance report. It has nothing to do with title insurance. 

Owners Title Insurance = basic owners coverage (liens, adverse claims, marketability, etc.)

*Owner's Extended Coverage = Extended Form Policy (everything in basic plus many additional coverages including post-policy matters, subject to different limits)

*not available for investment properties in many states

ALTA = American Land Title Association ... it's a trade association for the title industry. They create standardized forms, conduct lobbying activities, etc.

BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 19 2024, 07:14
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?


I believe a Preliminary Title Report in a title insurance context is the same as a title commitment.  It provides the terms and conditions under which a title policy will be issued.  It will have things like 1. the name of the proposed insured; 2. the amount of insurance; 3. the legal description of the property to be insured, the interest being insured such as leasehold or fee simple; 4. the requirements that need to be complied with such as a deed from the seller to the buyer, a mortgage from the buyer to the lender and release of the seller's mortgage etc.; 5. exceptions to coverage such as restrictions and easements that burden the property; 6. exclusions from coverage such as governmental actions.  this list is not all inclusive and there may be some other things I'm not thinking of off the top of my head.

The first and the second are two different types of Owner's policies, the 2nd provides additional coverage the 1st does not, albeit at a somewhat higher cost.  I believe the 3rd is the same as the 2nd.

The ALTA is the American land Title Association and is the trade association for the industry.  It establishes the template for the various types of title policies most insurers rely on.

User Stats

49
Posts
6
Votes
Aditya S.
  • Real Estate Agent
  • Virginia
6
Votes |
49
Posts
Aditya S.
  • Real Estate Agent
  • Virginia
Replied Jan 19 2024, 07:33

I have gotten it on every property I have purchased except new construction. There, I figure the title should be clean enough, especially when developed from raw land. In that case I only pay for the title insurance covering the lender.

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 19 2024, 07:36
Quote from @Shafi Noss:

@Peter Walther 

*Fannie Mae, Freddie Mac and Voxtur Analytics Corp. raise their hands*

Ok actually though, here is why I think that system of easement recording is bad. Normal people should be able to understand their property. This guy very reasonably title searched his property and found nothing. If easements that need to be recorded just had to be recorded in a way that showed up on a normal title search of the property, that whole misunderstanding would have never come up in the first place. Allowing it to be otherwise created confusion for no advantage. 

On the AOLs, great article. Two comments, One is that nothing just shows up with a large body of law behind it. There is a feedback loop between a practice and the law behind it that builds up recursively. AOLs are just starting to be used more, if we never did anything that didn't have a large body of law behind it, we'd still be riding horses. That said, it's a legitimate consideration.

The thing that remains unclear to me is exactly how much risk the curative work removes for its cost. I still do not see the combined ratio as a legitimate measure of this. 

For example, let's say a consumer paid $1000 for title insurance. $800 goes to expenses like underwriting, which is enough to attract competent underwriters, $150 in claims, so a combined ratio of 0.95. 

But if the consumer paid $2000, and $1700 goes to expenses like underwriting, $150 in claims, the combined ratio would be 0.975. The combined ratio is higher even though the title insurer is bringing in the same profit and (!) the consumer has double the cost for 0% more risk protection. The combined ratio did not measure this, in fact it went up while the value to the consumer went down. 

A better measure might be looking at the results of people who do not have that preventative work done, perhaps who eschewed title insurance completely, and compare losses to the people who did. I don't know where to find that but I just keep thinking of Iowa which charges $175 per transaction for full title protection and free CPLs and operates at a profit. 


I believe you'll find the American system of land title recording is based on English common law, except for Louisiana which is also is based on French law, so it's been around for a while and I doubt it's going to change anytime soon.

My point about the body of law is simply that with title insurance, insureds and insurers have a pretty good understanding of where they stand under the contract, not so much with an AOL. Assureds simply has no idea what their rights are. Neither does the attorney giving the AOL or his/her E&O carrier for that matter.

You're asking for data at a granular level that, to my knowledge, simply doesn't exist.  No two searches, title exams, curative work or closings are exactly the same.  The charges are based on average cost and include what is assumed to be a reasonable profit.  I think oil companies make too much profit, that doesn't mean I'm not going to buy gas this afternoon.  My electric bill is too high but I'm not going to disconnect from the grid.

Limit your property purchases to Iowa and you're all set.

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 19 2024, 07:57
Quote from @Aditya S.:

I have gotten it on every property I have purchased except new construction. There, I figure the title should be clean enough, especially when developed from raw land. In that case I only pay for the title insurance covering the lender.


I've dealt with many situations where the builder failed to pay suppliers and subcontractors leaving the buyer with liens on the property, sometimes in the hundreds of thousands of dollars.

User Stats

40,494
Posts
59,837
Votes
Jay Hinrichs#2 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
59,837
Votes |
40,494
Posts
Jay Hinrichs#2 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jan 19 2024, 08:26
Quote from @Aditya S.:

I have gotten it on every property I have purchased except new construction. There, I figure the title should be clean enough, especially when developed from raw land. In that case I only pay for the title insurance covering the lender.


wow.  new construction can be some of the riskiest you buy.. mainly in the form of sub contractor liens etc.. I would never ever consider buying new builds without.. and I build homes for a living I would never let my buyers buy without me providing title policy as is the custom in most of the markets we build in .. Its your risk of course but wow.

User Stats

49
Posts
6
Votes
Aditya S.
  • Real Estate Agent
  • Virginia
6
Votes |
49
Posts
Aditya S.
  • Real Estate Agent
  • Virginia
Replied Jan 19 2024, 08:38
Quote from @Jay Hinrichs:
Quote from @Aditya S.:

I have gotten it on every property I have purchased except new construction. There, I figure the title should be clean enough, especially when developed from raw land. In that case I only pay for the title insurance covering the lender.


wow.  new construction can be some of the riskiest you buy.. mainly in the form of sub contractor liens etc.. I would never ever consider buying new builds without.. and I build homes for a living I would never let my buyers buy without me providing title policy as is the custom in most of the markets we build in .. Its your risk of course but wow.

 

good points, thanks for sharing!

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Jan 19 2024, 08:51

@Peter Walther On the body of law, yes, it's a good point. It sounds like large assureds like Fannie and Freddie are comfortable paving the way for others, hopefully we can all benefit from that and other users and attorney's know to be cautious in the meantime. 

I'm asking for aggregate not granular data. If we had aggregate data about losses of people who don't have curative work done, we could compare to the aggregate data of losses for people who did have curative work done, and how much they paid for that curative work. There's still sampling bias but that would be a fair start. I don't believe $175 is enough to pay underwriters so Iowa may be a naturally occurring data set. 

People who were unhappy with real estate agents and lawyers receiving title kickbacks could have been told to deal with it or do business in a different country, but RESPA got passed because a bunch of people sat down and agreed there was a different way to do it. 

User Stats

3,364
Posts
3,293
Votes
Tom Gimer
Pro Member
  • DMV
3,293
Votes |
3,364
Posts
Tom Gimer
Pro Member
  • DMV
Replied Jan 19 2024, 13:10
Quote from @Account Closed:
Quote from @Jay Hinrichs: @Tom Gimer
Quote from @Peter Walther:
Quote from @Shafi Noss:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

I know this is a bit techincal  but same thing applies when your doing a DIL  or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim.

@Jay HinrichsYou said "I know this is a bit techincal but same thing applies when your doing a DIL or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim."

Since "Subject To" is selling the property, but not paying off the loan (buyer takes over payments), does that mean that the lender loses Title Insurance coverage since the Due on Sale is violated?  

If the property gets deeded back, does the Title Insurance get reinstated?

Lenders title insurance coverage is not affected by a subto sale of the property.

The buyer must obtain new owners coverage at a subto settlement if they want title insurance.

User Stats

3,364
Posts
3,293
Votes
Tom Gimer
Pro Member
  • DMV
3,293
Votes |
3,364
Posts
Tom Gimer
Pro Member
  • DMV
Replied Jan 19 2024, 16:39
Quote from @Shafi Noss:

@Peter Walther On the body of law, yes, it's a good point. It sounds like large assureds like Fannie and Freddie are comfortable paving the way for others, hopefully we can all benefit from that and other users and attorney's know to be cautious in the meantime. 

I'm asking for aggregate not granular data. If we had aggregate data about losses of people who don't have curative work done, we could compare to the aggregate data of losses for people who did have curative work done, and how much they paid for that curative work. There's still sampling bias but that would be a fair start. I don't believe $175 is enough to pay underwriters so Iowa may be a naturally occurring data set. 

People who were unhappy with real estate agents and lawyers receiving title kickbacks could have been told to deal with it or do business in a different country, but RESPA got passed because a bunch of people sat down and agreed there was a different way to do it. 

The title insurance industry developed as a result of the shortcomings of the prior system, which was based upon attorney opinion letters.

There are a literal HANDFUL of loans being insured (no owners, lenders only) by AOLs in just a few states versus MILLIONS by title insurances policies.

The Blank Rome article essentially confirmed you need to re-write and heavily endorse attorney E&O policies to even come remotely close (coming up quite short in several key areas) to providing the coverage of a title insurance policy. That sure sounds like a great solution for saving 20 basis points for a borrower.

Do you read or just skim?

And you're citing RESPA as a success? Please. You're in DC -- look up the recent Allied JVs with realtors and millions in kickbacks thru sham AFBAs... or maybe it has been buried in the fake news already.

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 20 2024, 07:36
Quote from @Shafi Noss:

@Peter Walther On the body of law, yes, it's a good point. It sounds like large assureds like Fannie and Freddie are comfortable paving the way for others, hopefully we can all benefit from that and other users and attorney's know to be cautious in the meantime. 

I'm asking for aggregate not granular data. If we had aggregate data about losses of people who don't have curative work done, we could compare to the aggregate data of losses for people who did have curative work done, and how much they paid for that curative work. There's still sampling bias but that would be a fair start. I don't believe $175 is enough to pay underwriters so Iowa may be a naturally occurring data set. 

People who were unhappy with real estate agents and lawyers receiving title kickbacks could have been told to deal with it or do business in a different country, but RESPA got passed because a bunch of people sat down and agreed there was a different way to do it. 


 Large assureds that are backstopped by the federal government for when there's an error in their judgment.  Franklin Raines didn't have to give back any of his salary.

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 20 2024, 07:54
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Account Closed

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?


You'll probably get different answers here. 

A preliminary title report to me is simply a document showing who owns the property and what encumbers it (mortgages, judgments, liens, etc.). Also known as an O&E -- owner and encumbrance report. It has nothing to do with title insurance. 

Owners Title Insurance = basic owners coverage (liens, adverse claims, marketability, etc.)

*Owner's Extended Coverage = Extended Form Policy (everything in basic plus many additional coverages including post-policy matters, subject to different limits)

*not available for investment properties in many states

ALTA = American Land Title Association ... it's a trade association for the title industry. They create standardized forms, conduct lobbying activities, etc.


That helps.

This is from a Settlement Statement of a property I’m selling

Title - Lender's Title Insurance to xxxx Title $857

Title - Owner's Title Insurance to xxxx Title $1590

Why is the Owner’s Title Insurance almost twice the price of the Lender’s?


Coverage for an insured owner lasts as long as an insured has an interest in the property or liability for a breach of warranty given if the insured conveys the property.  Therefore, the policy liability "tail" can continue on forever.  Practically, the risk of loss diminishes over time and might effectively be extinguished some time years down the road.  In addition, the amount of insurance is fixed as the amount shown on the policy.

With a lender's policy, liability lasts only so long as the insured has a lien on the property.  If the loan is refinanced and paid off after 3 years, the policy liability is extinguished.  In addition, the amount of insurance is limited to the amount of the debt outstanding.  So, if a loss occurs after 5 years and a $100k original loan has been paid down to $75k, that is the maximum amount the insured can recover and of course the maximum loss the insurer can experience, even though the amount of insurance shown on the policy is $100k.

Also, if a lender's policy is issued simultaneously with an owner's policy, the premium is generally substantially less than if the policies were purchased separately.  That's partially because an owner's policy contains a provision that any payment for loss paid under a simultaneously issued loan policy, will reduce the amount of coverage under the owner's policy.

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Jan 20 2024, 08:15
Quote from @Tom Gimer:
Quote from @Shafi Noss:

@Peter Walther On the body of law, yes, it's a good point. It sounds like large assureds like Fannie and Freddie are comfortable paving the way for others, hopefully we can all benefit from that and other users and attorney's know to be cautious in the meantime. 

I'm asking for aggregate not granular data. If we had aggregate data about losses of people who don't have curative work done, we could compare to the aggregate data of losses for people who did have curative work done, and how much they paid for that curative work. There's still sampling bias but that would be a fair start. I don't believe $175 is enough to pay underwriters so Iowa may be a naturally occurring data set. 

People who were unhappy with real estate agents and lawyers receiving title kickbacks could have been told to deal with it or do business in a different country, but RESPA got passed because a bunch of people sat down and agreed there was a different way to do it. 

The title insurance industry developed as a result of the shortcomings of the prior system, which was based upon attorney opinion letters.

There are a literal HANDFUL of loans being insured (no owners, lenders only) by AOLs in just a few states versus MILLIONS by title insurances policies.

The Blank Rome article essentially confirmed you need to re-write and heavily endorse attorney E&O policies to even come remotely close (coming up quite short in several key areas) to providing the coverage of a title insurance policy. That sure sounds like a great solution for saving 20 basis points for a borrower.

Do you read or just skim?

And you're citing RESPA as a success? Please. You're in DC -- look up the recent Allied JVs with realtors and millions in kickbacks thru sham AFBAs... or maybe it has been buried in the fake news already.

Of course AOLs have shortcomings through less coverage. Full title insurance also has shortcomings, through greater cost. 

Things being a certain way in the past doesn't mean it's the best way to do things in the future. When soap was invented, only a handful of hospitals used it. It was still a good thing.

In the past, AOLs were deemed too risky for many lenders. With the advent of electronic records, large lenders like Fannie and Freddie have changed their minds. As time goes on, those risks may continue to get lower, and AOLs may become more and more popular. 

My point with RESPA was that refusing to use a product is not the only way to change it. 

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Jan 20 2024, 10:32

@Peter Walther Yes, the perfect place to test something out in a low-risk way and elucidate the results for others to consider. 

User Stats

3,364
Posts
3,293
Votes
Tom Gimer
Pro Member
  • DMV
3,293
Votes |
3,364
Posts
Tom Gimer
Pro Member
  • DMV
Replied Jan 20 2024, 12:37
Quote from @Account Closed:
Quote from @Peter Walther:
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?


You'll probably get different answers here. 

A preliminary title report to me is simply a document showing who owns the property and what encumbers it (mortgages, judgments, liens, etc.). Also known as an O&E -- owner and encumbrance report. It has nothing to do with title insurance. 

Owners Title Insurance = basic owners coverage (liens, adverse claims, marketability, etc.)

*Owner's Extended Coverage = Extended Form Policy (everything in basic plus many additional coverages including post-policy matters, subject to different limits)

*not available for investment properties in many states

ALTA = American Land Title Association ... it's a trade association for the title industry. They create standardized forms, conduct lobbying activities, etc.


That helps.

This is from a Settlement Statement of a property I’m selling

Title - Lender's Title Insurance to xxxx Title $857

Title - Owner's Title Insurance to xxxx Title $1590

Why is the Owner’s Title Insurance almost twice the price of the Lender’s?


Coverage for an insured owner lasts as long as an insured has an interest in the property or liability for a breach of warranty given if the insured conveys the property.  Therefore, the policy liability "tail" can continue on forever.  Practically, the risk of loss diminishes over time and might effectively be extinguished some time years down the road.  In addition, the amount of insurance is fixed as the amount shown on the policy.

With a lender's policy, liability lasts only so long as the insured has a lien on the property.  If the loan is refinanced and paid off after 3 years, the policy liability is extinguished.  In addition, the amount of insurance is limited to the amount of the debt outstanding.  So, if a loss occurs after 5 years and a $100k original loan has been paid down to $75k, that is the maximum amount the insured can recover and of course the maximum loss the insurer can experience, even though the amount of insurance shown on the policy is $100k.

Also, if a lender's policy is issued simultaneously with an owner's policy, the premium is generally substantially less than if the policies were purchased separately.  That's partially because an owner's policy contains a provision that any payment for loss paid under a simultaneously issued loan policy, will reduce the amount of coverage under the owner's policy.

That would imply, that if he sells on "Subject To" or on an "Executry Contract", and no longer owns the property, (the seller just remains on the mortgage), any Owner's Title Insurance they bought would no longer apply? 

If Owner's still applies for some reason, & the owner bought for $100,000 and 
later sells on a Wrap for $150,000 I would guess that the insurance still only covers the $100,000 minus paydown?
The subto seller's owners coverage (other than any liability arising from the breach of a warranty) would terminate at the subto sale.

With a land contract / land installment contract / contract for deed (executory), coverage would continue (IMO) until the deed into the buyer was executed because the insured retains an estate or interest in the Land (legal title) until that time.

User Stats

40,494
Posts
59,837
Votes
Jay Hinrichs#2 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
59,837
Votes |
40,494
Posts
Jay Hinrichs#2 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jan 20 2024, 16:03
Quote from @Account Closed:
Quote from @Peter Walther:
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?


You'll probably get different answers here. 

A preliminary title report to me is simply a document showing who owns the property and what encumbers it (mortgages, judgments, liens, etc.). Also known as an O&E -- owner and encumbrance report. It has nothing to do with title insurance. 

Owners Title Insurance = basic owners coverage (liens, adverse claims, marketability, etc.)

*Owner's Extended Coverage = Extended Form Policy (everything in basic plus many additional coverages including post-policy matters, subject to different limits)

*not available for investment properties in many states

ALTA = American Land Title Association ... it's a trade association for the title industry. They create standardized forms, conduct lobbying activities, etc.


That helps.

This is from a Settlement Statement of a property I’m selling

Title - Lender's Title Insurance to xxxx Title $857

Title - Owner's Title Insurance to xxxx Title $1590

Why is the Owner’s Title Insurance almost twice the price of the Lender’s?


Coverage for an insured owner lasts as long as an insured has an interest in the property or liability for a breach of warranty given if the insured conveys the property.  Therefore, the policy liability "tail" can continue on forever.  Practically, the risk of loss diminishes over time and might effectively be extinguished some time years down the road.  In addition, the amount of insurance is fixed as the amount shown on the policy.

With a lender's policy, liability lasts only so long as the insured has a lien on the property.  If the loan is refinanced and paid off after 3 years, the policy liability is extinguished.  In addition, the amount of insurance is limited to the amount of the debt outstanding.  So, if a loss occurs after 5 years and a $100k original loan has been paid down to $75k, that is the maximum amount the insured can recover and of course the maximum loss the insurer can experience, even though the amount of insurance shown on the policy is $100k.

Also, if a lender's policy is issued simultaneously with an owner's policy, the premium is generally substantially less than if the policies were purchased separately.  That's partially because an owner's policy contains a provision that any payment for loss paid under a simultaneously issued loan policy, will reduce the amount of coverage under the owner's policy.

That would imply, that if he sells on "Subject To" or on an "Executry Contract", and no longer owns the property, (the seller just remains on the mortgage), any Owner's Title Insurance they bought would no longer apply? 

If Owner's still applies for some reason, & the owner bought for $100,000 and 
later sells on a Wrap for $150,000 I would guess that the insurance still only covers the $100,000 minus paydown?

 YUp thats correct and people are paying you guys big money for this sub to advice I have to think you already knew this or for sure should have.. 

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 22 2024, 09:01
Quote from @Account Closed:
Quote from @Peter Walther:
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Account Closed:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Tom Gimer:
Quote from @Peter Walther:
Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?


You'll probably get different answers here. 

A preliminary title report to me is simply a document showing who owns the property and what encumbers it (mortgages, judgments, liens, etc.). Also known as an O&E -- owner and encumbrance report. It has nothing to do with title insurance. 

Owners Title Insurance = basic owners coverage (liens, adverse claims, marketability, etc.)

*Owner's Extended Coverage = Extended Form Policy (everything in basic plus many additional coverages including post-policy matters, subject to different limits)

*not available for investment properties in many states

ALTA = American Land Title Association ... it's a trade association for the title industry. They create standardized forms, conduct lobbying activities, etc.


That helps.

This is from a Settlement Statement of a property I’m selling

Title - Lender's Title Insurance to xxxx Title $857

Title - Owner's Title Insurance to xxxx Title $1590

Why is the Owner’s Title Insurance almost twice the price of the Lender’s?


Coverage for an insured owner lasts as long as an insured has an interest in the property or liability for a breach of warranty given if the insured conveys the property.  Therefore, the policy liability "tail" can continue on forever.  Practically, the risk of loss diminishes over time and might effectively be extinguished some time years down the road.  In addition, the amount of insurance is fixed as the amount shown on the policy.

With a lender's policy, liability lasts only so long as the insured has a lien on the property.  If the loan is refinanced and paid off after 3 years, the policy liability is extinguished.  In addition, the amount of insurance is limited to the amount of the debt outstanding.  So, if a loss occurs after 5 years and a $100k original loan has been paid down to $75k, that is the maximum amount the insured can recover and of course the maximum loss the insurer can experience, even though the amount of insurance shown on the policy is $100k.

Also, if a lender's policy is issued simultaneously with an owner's policy, the premium is generally substantially less than if the policies were purchased separately.  That's partially because an owner's policy contains a provision that any payment for loss paid under a simultaneously issued loan policy, will reduce the amount of coverage under the owner's policy.

That would imply, that if he sells on "Subject To" or on an "Executry Contract", and no longer owns the property, (the seller just remains on the mortgage), any Owner's Title Insurance they bought would no longer apply? 

If Owner's still applies for some reason, & the owner bought for $100,000 and 
later sells on a Wrap for $150,000 I would guess that the insurance still only covers the $100,000 minus paydown?

If the insured conveys the property by warranty deed and later is sued for a breach of those warranties, assuming the cause of the breach (i.e. easement, lien, restrictions etc.) are not excepted or excluded from coverage, there should be coverage.

If coverage is there because of the above, the insured still has the amount of insurance shown on the policy.

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 22 2024, 09:05
Quote from @Account Closed:
Quote from @Jay Hinrichs:
Quote from @Account Closed:
Quote from @Peter Walther: YUp thats correct and people are paying you guys big money for this sub to advice I have to think you already knew this or for sure should have.. 

@Jay Hinrichs: Think of it this way. There is something called the Socratic method where Socrates (who was a pretty bright fellow) would ask his students questions. It wasn't that he didn't know the answers, but he wanted his students to think rather than blurt back memorized facts.

When I say things, it's self serving. I coach Subto and Seller financing, safely and legally but anything I say, is tempered with that fact.

So, On this subject, who has more credibility @Peter Walther:, @Tom Gimer: or me? They are far beyond me on Title Insurance for sure. They don’t directly benefit from explaining so much for our consumption. I've actually learned some things. So, doesn’t it make sense to ask the questions to them, questions that anyone considering using Subto & Creative Finance should be asking, but don’t know to ask?

A great coach is ever learning and is not a “know it all”. People base their investing on the coach, so a great coach has to be coach-able, too.

However, the people considering joining the SubPar, Subto community don't have a clue what they are getting themselves into and it isn’t being taught.

For instance, They are taught that Executory Contracts solve the Due on Sale call. Well, they don’t.

In fact, it affects a whole chain of events (title, insurance, etc) and has serious ramifications the Subto community doesn’t even bring up, let alone address.

So, back to Socrates, if I can ask questions that make investors think about what they are doing and why they are doing it, I have succeeded. Tom & Peter are providing the expertise.


 I am available for private tutoring.

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Jan 23 2024, 05:54

@Account Closed Hey I have a question for you Ken. One thing that makes me hesitate with subject to's is I'm sure you've heard the argument that capital costs are higher now so lenders would love to redeploy their capital at a higher interest rate. Maybe not last year when nobody was looking for new mortgages but perhaps this year now that applications are back up. 

Some people say "But how will the lender know about the new owner without checking title manually, they have tons of loans and work and don't have time for that."

But when there's a servicer involved, the servicer can detect when the payments start coming from a new source or sending updates to a new email or address, so seems like lenders can easily track that without any work, and should they wish to call the loan, have a big list at their fingertips. 

Does that sound right to you? It's scared me off from looking at subject to's recently. 

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Jan 23 2024, 07:37
Quote from @Shafi Noss:

@Account Closed Hey I have a question for you Ken. One thing that makes me hesitate with subject to's is I'm sure you've heard the argument that capital costs are higher now so lenders would love to redeploy their capital at a higher interest rate. Maybe not last year when nobody was looking for new mortgages but perhaps this year now that applications are back up. 

Some people say "But how will the lender know about the new owner without checking title manually, they have tons of loans and work and don't have time for that."

But when there's a servicer involved, the servicer can detect when the payments start coming from a new source or sending updates to a new email or address, so seems like lenders can easily track that without any work, and should they wish to call the loan, have a big list at their fingertips. 

Does that sound right to you? It's scared me off from looking at subject to's recently. 

I think the biggest tip-off is when a new name appears on the HO's policy.  I've always been curious as to how the sub to purchaser deducts the interest portion of the mortgage payment from their taxes since they don't have any legal obligation to pay?

User Stats

1,498
Posts
637
Votes
Peter Walther
  • Specialist
  • Winter Springs, FL
637
Votes |
1,498
Posts
Peter Walther
  • Specialist
  • Winter Springs, FL
Replied Feb 3 2024, 06:50

Misguided Attacks On Title Insurance Could Have Grave Consequences (forbes.com)

User Stats

40,494
Posts
59,837
Votes
Jay Hinrichs#2 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
59,837
Votes |
40,494
Posts
Jay Hinrichs#2 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Feb 3 2024, 07:04
Quote from @Peter Walther:

Misguided Attacks On Title Insurance Could Have Grave Consequences (forbes.com)


bottom line is title insurance is a very small % of the investment to go without it to save a 500 to 2500 is just foolish full stop.

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Feb 4 2024, 06:53
Quote from @Account Closed:
Quote from @Peter Walther@Tom Gimer:
Quote from @Shafi Noss:

@Account Closed Hey I have a question for you Ken. One thing that makes me hesitate with subject to's is I'm sure you've heard the argument that capital costs are higher now so lenders would love to redeploy their capital at a higher interest rate. Maybe not last year when nobody was looking for new mortgages but perhaps this year now that applications are back up. 

Some people say "But how will the lender know about the new owner without checking title manually, they have tons of loans and work and don't have time for that."

But when there's a servicer involved, the servicer can detect when the payments start coming from a new source or sending updates to a new email or address, so seems like lenders can easily track that without any work, and should they wish to call the loan, have a big list at their fingertips. 

Does that sound right to you? It's scared me off from looking at subject to's recently. 

I think the biggest tip-off is when a new name appears on the HO's policy.  I've always been curious as to how the sub to purchaser deducts the interest portion of the mortgage payment from their taxes since they don't have any legal obligation to pay?

@Shafi NossHere is the short version:

There is actually a lot more to your question than is obvious.
Servicers hire people to process payments. That doesn't require a lot of skill and they are not trained or paid to notice where the money comes from. They do data entry.

@Tom Gimer: listed a few of the identifiers of things that trigger a closer scrutiny, in one of his posts that I've since lost track of.

As @Peter Walther points out, changing Home Owner's insurance is one of the main triggers. There are a couple of legal ways to avoid that from being a problem. People are very foolish to not address Home Owner's insurance and I believe the "Subto community" avoids discussing the issue because they don't know how to handle it correctly.

A servicer or a lender can very quickly get a list of "Subject To" loans if they cared to do it. This isn't the days of having to go through every file by hand.

Financial institutions, I believe, are starting to get "stressed" and they will be more proactive in addressing this issue. There are solutions, but being all over the internet like a certain guru, bragging that you are buying houses off the MLS at full price using unsophisticated lenders in 2nd position to over leverage the purchase, so you have no money out of pocket as you buy properties is not a lasting proposition and won't end well.

Unsophisticated Subject To "buyers" (wannabes) are apparently taught that having the "Correct Contract" makes it all legal and keeps them out of trouble and cures hemorrhoids. That is like saying you will only be charged for theft if you steal a gun, rob a bank and shoot someone.

The danger isn't the Due on Sale clause, that's the gateway to the other charges. When people don't follow the rules and the law (which apparently is woefully omitted in the Subto community's teachings, bad things happen. I think telling people the truth probably cuts into profits and enthusiasm for “Dear Leader”: (That’s a “cult” term)

Since the Subject To purchaser makes the mortgage payments and owns the property, the IRS deems that sufficient enough to take the deduction, per my recent IRS audit which includes a large portfolio of Subject Tos and various other creatively financed properties. In fact, the IRS auditor granted a refund (based on other issues) that was quite large. He had no problem with how I run things.

So, since I have the breadth of experience, I still buy using Subject To, but I know the trip wires and teach what and where those are. I don't believe that in the current climate, very many investors understand those points.

Those trip wires are what I believe will get a lot of attention. By the way, the "guru" said in a recent video he has had 10 Due on Sale called in the last month and his students a dozen or two themselves.

That should give pause to anyone contemplating joining his “community” or using his methods.

Ok thanks, I have another question if you don't mind. I'm looking at a deal right now in Texas that's on a land contract. We want to buy it and then lease back to the current occupants. Since those got regulated to basically behave like seller finance now, we basically have to convert it to an actual seller finance structure (which we confirmed is possible) and then buy and seller leaseback to the current occupants. 

The problem is the lender we want to use doesn't like seller leasebacks. I was thinking about a double close to solve that in a technical sense (lender sells note to capital markets so they may or may not be ok with a technical workaround), but anything else stick out off the top of your head?

User Stats

515
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
515
Posts
Shafi Noss
  • Washington, D.C.
Replied Feb 4 2024, 09:51

@Account Closed Ok thanks