If you’re not telling your clients to get owner’s title insurance on purchases—especially foreclosures—you could be opeining yourself up for some liability.
In today’s market, foreclosures are very prominent—and they come with a lot of potential issues. Owner’s title insurance is a onetime expense that can cover any title issue that may arise for the lifetime of the property. Just one title lien/cloud or issue can be a five to six figure headache! If you think about it that way, you’re getting a great return on your money.
We all know lenders are covered in mandatory, but owners are not. Don’t think your clients need O.T.I. because a title search was done? THINK AGAIN. Let me tell you about something that happened to me…
Recently, I purchased a foreclosed REO property as an investment to flip, and began to work on the property to turn it around for resale. I made the improvements, put the property on the market, and sold it. When we were two weeks into the sale, the settlement attorney for the buyer told me that there was an $80,000 lien against the property! The first thing he did was ask me if I had purchased owner’s title insurance. Thank goodness I had! The foreclosing bank had failed to give notice to one of the lien holders prior to the foreclosure (which is illegal in Maryland), and then proceeded to foreclose on the property. The lien was so old that the initial title company did not check it, but the lien holder was still in business and was aware of their position. I got in contact with the lien holder and they were unwilling to release their position, which they had every right not to do. So, I filed the claim, and my title insurance company paid it. *Whew!!! Had I not paid for owner’s title insurance, I would have lost $80,000 dollars!
I could tell you 20 more stories like this one, as I deal with so many foreclosures that have title issues.
Reasons why title insurance is important, and how clouds in title can appear:
1. Due to the complexity of lending practices several years back, there can be hidden liens, or things that cannot be discovered on the regular title search. Sometimes the deed was recorded wrong, or something wasn’t correct in the initial paperwork that can expose the property to title issues. If banks had their paperwork straight, and did everything right, we wouldn’t have some of the economic problems we have now.
Just think about it in short sale terms—I’ve had short sale packages lost hundreds of times, and I have had REOs sent to me that were the wrong address. I’ve seen banks foreclose on the wrong properties!!! I’ve seen banks hold a mortgage on multi-acreage plats of land, foreclose on them, and only foreclose on part of the parcel because they didn’t record, or read the correct deed. There are all kinds of things that can arise. As agents we have to make our clients aware of this.
2. For the cost, it’s really worth the money. Paying a couple hundred dollars to save a possible five to six figures is well worth the money! What if a client called and had a title issue after they bought a property through you, and you didn’t suggest owner’s coverage to them?? This would surely damage your credibility as an agent.
3. Any type of property can have a title issue. I have seen clouds in title especially with estates. I’ve seen wills pop up after properties were sold with, at the time (and unbeknownst to anyone), heirs who were owed their share of the estate. It’s not just limited to foreclosures, either. It can affect any property; new, old, REO or regular resale.
This is a cheap cost that I think is a must in our marketplace, and suggesting it not only shows your client how much of a professional you are, but shows them that you’re looking out for their best interest. We can’t force them to buy it, but we can certainly give our advice. If a title problem arises and they bought insurance because of your suggestion, well you’ve just earned yourself a lifetime client, and you can be guaranteed you will get referrals from them!!!