The Importance Of Owner Title Insurance
Posted on December 16, 2019 by Nancy Liu | Category: Real Estate
The value of Owner’s Title Insurance for purchasing a house
When you make a decision to buy a house, there are two Title Insurances that are important during closing process. The first is Lender’s Title Insurance, which is an insurance policy covering a lender for the loan. It is compulsory for a house-buyer to purchase this policy otherwise he will not be able to get a loan from Mortgage Banks. The second is Owner’s Title Insurance, which is used to protect the buyer, up to the full amount of the policy. It is a one time fee and paid at the time of settlement. In most of cases, a Closing Attorney will suggest their buyers to buy the Owner’s Title Insurance. In reality, however, many buyers do not consider this policy. They even do not realize the consequence without the protection of this policy. In this and the next article, Attorney Liu will illustrate the importance of Owner’s Title Insurance in two real case studies.
Client A bought a commercial property for $400,000 and had the closing done by his closing attorney. After that, in order to renovate his shop for the opening, he applied an Equity Loan from a Mortgage Bank, which appointed me as the closing attorney. After checking the historical record of this property, I found out the seller did not possess a Fee Simple of this property. The seller only possessed a Leasehold Interest. According to the record, the first owner leased this property to client X for 60 years. But Client X considered his leasehold interest a fee simple and sold the property to client Y based on fee simple conveyance. And client Y did the same thing to client Z. Then, client Z sold this property to client A in 2000. However, all transactions for this property are leasehold interest conveyance. All these clients thought they had the ownership for this property. However, the actual owner of this property passed away several years ago without a passage of title of this real property specified in his will.
After taking over this case, I examined all relevant documents and records of this property, and informed client A that he did not possess the fee simple to this property. It is difficult for client A to accept the fact. He didn’t understand why this serious circumstance would happen since he had a closing attorney to do the closing. Client A may lose his investment of $400,000 and be unable to apply the Equity Loan from bank for his opening. He felt very upset and helpless.
There are several reasons that may lead to such consequence. Sometimes clients want to save closing fee. Therefore they request closing attorney to do minimum verification on the historic documents of the property transaction. As a result, closing attorneys may not conduct a thorough investigation. Second, clients withhold part of truth to their closing attorneys. In the above-mentioned case, one of the sellers wrote a seller’s affidavit to his or her closing attorney and indicated that he or she possesses the fee simple of this property. Therefore, this seller should assume full responsibility. But where can client A to find this seller since this transaction was done in 10 years ago?
I went over all client A’s closing documents cautiously, and I discovered client A bought an owner’s title insurance policy. It could be an only opportunity for client A to avoid a huge lost from his investment. Thus, I figured out an efficient and cost-effective solution. I suggested client A to claim insurance under the Owner’s Title Insurance Policy from his insurance company. After the insurance company examined all investigated documents of this closing, they agree to help client A cure the title. It took four months to find out the actual owner’s heir. After a negotiation, they agreed to convey their title of ownership to my client A at a price of $100,000, which was paid by the insurance company.
Finally, client A obtained the warranty deed with the actual owner’s heir. Client A not only acquired his fee simply ownership, but also save the $400,000 investment. In addition, he has successfully obtained an equity loan approval from the bank. As we can see from this case, an owner title insurance policy is critical in any real estate transactions in order to protect your investments. This policy only takes several hundred dollars and it covers the beneficial for a lift time.
This article is only for your reference. Please do not apply mechanically to any exact cases. You are welcome to consult our attorneys at Liu & Associates, P.C. For contact information, please click here.