|Title Insurance: Don't Buy Property Without it|
November 21, 2014 | John C. Rochford, Community Title Company
What's more horrifying than losing thousands of dollars unexpectedly? Not much.
Purchasing a piece of real estate, be it a family home or retail space, is one of the largest investments you will probably ever make. You think you’re prepared — you stayed within budget, had the property inspected and you took out homeowners’ or business insurance. With so much at stake, though, there’s a lot that can go wrong behind the scenes. Unreleased liens, invalid deeds, missing heirs and incorrect or fraudulent information in public records are just a few problems that stand to jeopardize your investment.
Let me give you an example. A client of mine decided to build a house from the ground up in Williamson County. He invested his life savings into a large piece of property with high hopes for the future home. Unfortunately, once the title was in his name, it was revealed that the previous owner had come into some financial troubles and was unable to pay the mortgage lien against the property, leaving my client with a sudden hundred thousand-dollar expense. While he was required to purchase title insurance for the benefit of the lender — as most buyers are — he claims his title agent not only failed to pay off the lien but also never offered or encouraged him to purchase title insurance for himself. It was unfortunate to see such a responsible guy put in a financial bind through no fault of his own because there was a problem with the title agent and the seller. A lot of time and stress could have been saved had he known paying the one-time fee for title insurance would have protected his investment.
A common misconception is that title insurance only protects you up to the point of closing. In reality, the policy will protect you from any errors that come out of the shadows even after closing. That means if someone claims they have a legal right to your property as an heir years after closing, you and your family are still protected.
Take the young couple I worked with a few years ago, for instance. I handled the closing on a townhouse they purchased in Nashville from a builder they didn’t know exceptionally well. I encouraged them to purchase an enhanced policy of title insurance, also known as a homeowners’ policy of title insurance, which offers coverages not available under a standard title insurance policy. The initial title search came up clean with no liens against the property, but post-closing, they received a letter from a company claiming that they had not been paid by the contractor for installing all of the hardware in the house and the burden was pushed onto the new homeowners. Under a standard title insurance policy, they may have been stuck paying for their contractor’s mistake. Under the enhanced policy, though, the lien was turned over to the title insurance company and the issue was resolved.
Issues can also stem from the escrow process. When setting up an escrow account to pay property taxes, the lender often asks the title agent to estimate the annual property taxes. The lender then uses this information to calculate the mortgage payment. Many people don’t consider it, but new construction plays a huge role in whether an accurate good faith estimate is made. Say a buyer wants to have a house built on a piece of property. If the title agent estimates the tax liability based on the empty lot rather than on the improved value, the escrows will come up short.
Always be sure to ask potential lenders and title agents what fees you will be charged. If the mortgage payment you were promised is jumping substantially due to incorrect tax estimations, you should talk with the title agent that handled the closing and the lender to find out how the error happened. Unfortunately, there’s not much that can be done once the mistake has been made.
Many buyers are so frazzled by the moving process that they aren’t thinking about legal issues, and they shouldn’t be expected to consider such problems. That’s why it’s essential to work with a reliable and experienced title attorney, lender and title agent from the start. Combined with title insurance, an attorney can help you avoid falling into your own title horror story.
John C. Rochford is owner of Community Title Company LLC.