Is title insurance worth it?

Question

Hello BP community!

I will be closing on a rental property early next month.  This is a one owner property that is being sold because owners reside out of state and would like to use the funds for other investments.  The current owners built the property so we only have one owner to worry about.  Also this is a cash purchase and will be refinanced in 6 months after the close.  The property will be refinanced to pull all funds out as its valued quite a bit higher than the purchase price.

From my understanding you have to wait at least 6 months for this to happen?  So will i have to go through all the title work again when its refinanced and would I be able to get title insurance at that time to cover anything from the past?

Also, not sure if this matters but a 1031 exchange will be used to fund the purchase.

Chris Martin · Answer

You don't need a loan to get title insurance Regarding "You don't need it, until you need it." Exactly. I've had tenants burn down houses and a 16 unit burn to the ground. Operate without hazard insurance? No. "You don't need it, until you need it." really should just be "you need it."

Costs a few bucks. Just do it.

Scott F. · Answer

@Michaela G.

Is correct, get the title insurance!

I had a bank sheepishly come back to me over a YEAR after I had closed on a project – they never recorded the lien; so I signed again because that’s how I roll but others may have told them to take a hike!

Michaela G. · Answer

Yes, yes, yes...always get title insurance!

You don't need it, until you need it. Even if it's just one owner, what if he has a tax lien that was misfiled and later shows up? Maybe he has an ex-wife that he was married to when he bought the property and who suddenly wants a part? There are all kinds of things that can suddenly come up.

The amount, compared to your investment, is so low, that it be foolish to save on that.

Mark Creason · Answer

@Ryan Melander

I would consider creating a loan so that you have a lender's policy on the property.  Even if it is a small loan, say less than a 1000, you would have an existing lender's policy.  This existing lender's policy will save you when you go to refinance later, as most title companies discount on the refinance.  The cost for a lender's policy on less than 1000 should be negligible.

Mark

Dave Foster · Answer

@Ryan Melander, You may want to ask your title company about a "hold open policy" or a discount for previous policy.  That can bring the cost down on a second policy dramatically and make the small extra cost insignificant compared to the missed municipal compliance fine or mechanics lien.  Those can ruin your day pretty quick.

Dennis S. Gelbart · Answer

Yep, DO NOT EVEN THINK of not using title insurance. If your title is wrong down the road, you will loose your shirt.

Dennis Gelbart

My Hassle Free Living

John Teachout · Answer

I've purchased quite a few properties over the years and only had one title issue. If I hadn't had insurance I don't think it would have been a large expense but it was for a piece of acreage in MI that was incorrectly described. In MI properties are mostly surveyed into townships, sections, and so forth so descriptions sound like: The NW quarter of the southern half of the eastern part of section 9 less a portion commencing 600 feet from the eastern boundary of .... blah blah.

Anyway, when I got my tax bill, the county clerk sent me a note saying that she thought the description sounded incorrect and she drew a picture on a map of what the description showed and then what she thought I had actually purchased. Long story short, this all had to get sorted out between the seller's attorney, the title company, my attorney and so forth and they had to re-issue the deed with the correct description. The title insurance company covered whatever expenses there were. (I never saw any numbers) So, I always buy title insurance just because...

Danita Francis · Answer

Chris Martin, can you please explain hazard insurance?  Is this a policy you carry on behalf of your business like liability, or is this something one has to purchase on a per property basis?  If so, how does this work and what insurance company offers it?

Ryan Melander · Answer

@Scott F. thanks for your input.  I figured thats the way to go, small percentage to pay in order to protect an investment.  Cutting out title insurance for the 6 months between the cash purchase and refinance did cross my mind but thanks for setting me straight BP community;)

Ryan Melander · Answer

@Michaela G. Thanks and very true.  The plan is to refinance in 6 months.  So I guess the question is what are the chances something could/would happen in that short time?  I've always thought of title problems happening down the road, like in years not months.  In fact i've never heard of anyone having problems... and when i refinance ill get title insurance which should cover the previous 6 months correct?

Is title insurance worth it?

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