One of the most commonly asked questions I get asked when speaking with investors is “what
is title insurance and why do I need it”? Typically investors feel like title insurance is a waste of
money because they may not plan to hold the property for more than a couple of days but what
they don’t understand is it only takes one day in title to cause issues on an uninsured deed.
In my 24 years in the business, I have seen investors do a ton of deals structured many different
ways. The investors that choose not to obtain insurance are the ones we hear the horror stories
about. I recently had a client who had a property quick claimed to them without title insurance;
they paid cash for the property and found out after the fact that the deed was fraudulent. With
no property and no money that investor suffered a financial loss that he could not recover. This
is an extremely rare case where title insurance would have come in very handy, but it does
happen. As you know in the investor world it is the little things that add up. The odds of a small
title issue like taxes, HOA or city ordinance violations are more likely to occur for the everyday
investor and affect your bottom line. So let’s get into the nitty gritty of what title insurance
Here are just a few of the most common hidden risks that can cause loss of title or create an
encumbrance on title:
- False impersonation of the true owner of the property
- Forged deeds, releases or wills
- Undisclosed or missing heirs
- Instruments executed under invalid or expired power of attorney
- Mistakes in recording legal documents
- Misinterpretations of wills
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Liens for unpaid estate, inheritance, income or gift taxes
What protection does title insurance provide against defects and hidden risks?
Title Insurance has a duty to defend against litigation stemming from a covered risk under the
policy. For a one-time premium, an owner’s title insurance policy remains in effect as long as
the insured, or the insured’s heirs, retain an interest in the property, or have any obligations
under a warranty in any conveyance of it. Owner’s title insurance, issued simultaneously with a
loan policy, is the best title insurance value a property owner can get.
I hope this helps to answer the age long question of “why do I need to pay for title insurance”.
As always, investors are eligible for an investor rate at almost all title companies and partnering
with your escrow officer to determine the best coverage for the lowest price should be part of
your business model. Take the time to meet with us to discuss your investment plan so that your
title/escrow expert can help determine what the best product is for you and your clients. 2012 is
off to a great start so keep yourself protected and keep investing!