March, 2008
Myths and Facts About Title Insurance
Myth: Title Insurance is unnecessary because it has a very low claims ratio.
Fact: The title industry is a risk-elimination industry. In a perfect world, the title ex- aminer would report, and the closer would clear up or eliminate all potential tile issues (judgments, liens, etc.), prior to closing so that the purchaser obtains a good title. However, even the most competent title examiner cannot discover more than 20 types of hidden title defects that can adversely affect property title, including missing heirs, forgeries, improper parties to a deed, etc. Whenever such a challenge arises, title in- surance protects the homeowner's rights to the property.
Myth: Title Insurance is expensive coverage.
Fact: Title Insurance offers homeowner's low-cost protection. Assume that the one-
time premium on a particular transaction is $1,000. While that is not an insignificant
figure on the HUD-1 settlement statement, it's more accurate to consider the cost of
the premium over the time the property is owned. In the above example, if a pur-
chaser lives in the property for ten years, the one-time-only premium's true cost is
only $100 a year. That inexpensive coverage offers protection for the homeowner's
most valuable asset for as long as the property is owned and protection on any warran-
ties given by the insured to a future purchaser.
Myth: Few properties have title problems.
Fact: A large percentage of real estate titles have defects. Whether these defects are
unreleased prior mortgages or judgments, questionable property descriptions, or some-
thing else that can adversely affect the title, many of these properties would sell only
at a significant discount– and some would not sell at all-without the comfort of a title
policy. In many instances, title insurance is the grease that keeps real estate's wheels
rolling.
Myth: Title problems are solved by writing a check.
Fact: Title claims are contentious, emotional, and very expensive. Threats to property
titles through fraud and other intentional means are on the upswing, and few home-
owners can afford to pay litigation costs. Knowing that litigations fees and title cover-
age will be borne by the homeowner's title insurance company offers peace of mind
worth every penny of the one-time-only-premium.
A Homeowner's Right to Choose a Title Insurance Company
A federal law called the Real Estate Settlement Procedures Act (RESPA) entitles the individual homeowner to choose a title insurance company when purchasing or refinancing residential property. Typically, homeowners don't make this decision for themselves, instead relying on their bank's or attorney's choice; however, the homeowner retains the right. RESPA makes it unlawful for any bank, broker or attorney to mandate that a particular title insurance company be used. Doing so is a gross violation of federal law and any person or business doing so can be heavily fined or lose its license. The only exception to this rule applies to commercial real estate transactions, which is not within the parameters of RESPA.
Source: http://en.wikipedia.org/wik/Title_Insurance
