Top 5 Misconceptions About Title Insurance

1.  The seller can transfer their title policy to me at closing.

A.   Title policies are not transferable in that way but the seller can provide a current title policy which is less than 10 years old so the buyer can get a reissue rate at settlement.

2.  I’m buying a new home therefore, I don’t need title insurance because I am the first owner of the property.

A.  While the home may be brand new, the land that the home sits on has been around       for a very long time and has likely had multiple owners prior to the builder coming in and subdividing the land.  Title insurance is just as relevant on new construction as it is on a typical resale transaction.

3.  I don’t need an owner’s title policy because I would be protected by the lender’s title insurance policy.

A.   Just like with any other policy for insurance the only person protected is the named insured.  Only the lender can make a claim and seek protection as the named insured of the lender’s policy.  The buyer has no protection under the lenders policy.  By purchasing both an owners and lenders policy at closing the buyer will receive a simultaneous issue rate which does reduce the cost.

4.  I’ll get a different policy if it is a distressed sale such as a short sale, REO or foreclosure.

A.The policy is the same.  Homes are not rated based on risk like a health insurance policy.  If the company is willing to issue the policy it will be the same.

5.   Title insurance is a scam because companies collect the premiums and nothing is ever paid.

A.  Title insurance is unique because it is about risk elimination not risk assumption.  During underwriting you look back in time via a title search to eliminate the likelihood of claims.  While title insurance companies may only pay out 5-6% of premiums collected in claims there is a reason for this.  The cost of the policy is based more on the man hours necessary to research the title history to make sure it conveys without defect.