Yes, title insurance is necessary!Nathan Pascalimpersonation, fraud, foreclosures, defective acknowledgment
Many new mortgage professionals and homebuyers often ask, "Is
title insurance really necessary?" In fact, to many, title
insurance is a vague and oft misunderstood concept essential to the
real estate transaction. Being able to clearly explain this concept
to your borrowers is not only responsible as a mortgage
professional, but will also help you build trust and rapport. In
today's climate, it is more important than ever to maintain an
ethical practice and be a knowledgeable professional when educating
your borrower in fees associated with, arguably, the most important
transaction of his life.
What is title insurance?
Plainly stated, title insurance provides protection to the
homeowner against a loss. A loss generally can occur from any
problem associated with the title to the property being different
than for what it was insured. In actuality, there are many hidden
risks that could cause a loss of title or create encumbrances,
including, but not limited to:
•Impersonation of the true owners of the land by
fraudulent persons;
•Undisclosed or missing heirs;
•Liens from unpaid estate, inheritance, income and gift
taxes;
•Defective acknowledgment, due to lack of authority of
notary;
•Descriptions apparently, but not actually, adequate;
•Mistake in recording legal documents;
•Fraud, duress or coercion in securing essential
signatures;
•Deeds by persons of unsound mind; and
•Invalid, suppressed, undisclosed and erroneous
interpretation of wills.
What types of policies are available?
It should be noted that there are three types of policies generally
offered by your title company.
Lender's policy
Traditionally, for loans more than $100,000, a lender's policy is
required. The lender's policy only protects the lender against loss
suffered if there is a claim.
Basic owner's policy
The owner's policy is required of a buyer to protect his investment
in the property. This policy would provide clear title coverage to
the property and protect against some of the listed hidden risks,
including missing parties to a deed, use restrictions, easements,
fraud and forgery.
Enhanced owner's policy
The enhanced owner's policy may cost slightly more than the basic
owner's policy, but will include additional coverage regarding
zoning violations, building-permit violations and encroachment
removal.
Is title insurance really needed?
To some borrowers, many of the mentioned problems may seem highly
unlikely. They may even balk at its importance, even after you have
explained to them what it is. They may even assume that it is an
ancillary fee or believe that the title is free and clear because
the company charged with doing the search of land records would not
permit the transfer without any issues being resolved. Sadly, in
many cases, this is simply not true.
Due to human error, a search may not always be as thorough as
assumed and flawed. A simple error, such as a misspelled legal
description or an overlooked lien by a title examiner, can generate
a claim. These mistakes are normally not malicious, but rather just
human occurrences that happen from time to time through the
process.
By acquiring the owner's policy, the borrower would be protected
against these inaccuracies for at least the value of the
property.
Still not convinced?
Given the current market conditions and claims on the rise, title
insurance is more important than ever.
It is unfortunate, but with mass foreclosures looming on the
horizon, many homeowners who are caught in this position are
desperately trying to avoid further negative financial consequences
by unloading their homes as quickly as possible.
In desperation, some have been led to take measures that can be of
an unscrupulous nature. It should come as no surprise that some are
finding ways to otherwise defraud and to take advantage of the
recent misfortune. Despite a title insurance company's greatest
efforts to catch and avoid such situations, your borrower should be
aware that some may slip through the cracks.
In the event that your client is unknowingly subject to these
dealings, title insurance can provide the peace of mind to your
client that he will be protected.
As real estate professionals, it is our responsibility to
understand the products we are selling and educate the consumer.
Now is a great time to help improve the image of our industry.
Extend your part by educating your clients, and you will find that
not only do you become a credible resource, but also a professional
that your clients will trust and refer.
Nathan Pascal is the president of sales and marketing for Huntington Title & Escrow
LLC, based in Owings Mills, Md. He may be reached at (443)
738-1708 or e-mail
[email protected].
