Is Title Insurance a Necessary Evil

You could be a doctor, a CFO or even a rock legend, but the most important title you may hold may be the title of your home. A lot of buyers and sellers consider title insurance a necessary evil in purchasing property. In addition to your health, auto, life, pet, dental, vision, boat, cell phone and motorcycle insurance, there is another policy that you must have, it's title insurance. A title insurance policy protects a home owner or property owner from any damages that may occur because of problems with the owners title. These may include liens, encumbrances or validity of the related search. It is also required anytime there is a loan on a property. The lender will not fund without the insurance of clear title.

I sat down with Mark Boeh of Fidelity National Title Company to ask him a few questions about the title insurance business. Mark has been working in the title insurance business since 1984, and he has seen a lot of changes recently that are directly correlated with the current state of the market. "This market is a lot more challenging than it has been in the past, mostly due to the amount of distressed property that we are seeing. With distressed property there is an inordinate amount of liens and defaults than we would see from a conventional purchase," said Boeh. Distressed properties like bank owned foreclosures and short sales comprise a significant portion of transactions in this market. Simply put, this presents a larger risk to the home buyer because previous sellers may have been delinquent in paying property taxes, and other bills which may impose liens on the property. He continued by saying," The primary job of your title insurer is not necessarily just putting together an adequate policy for you, it is disclosure. Before you purchase a home a title insurance company will present you with their research from their title search. A title search includes investigating public records from the County Recorder, Federal and State Agencies, and local County and City offices. From this information we derive a Preliminary Report, which is given to you, the home buyer to review before purchase."

Being a Carlsbad real estate agent I've experienced Mark's expertise first hand, he has assisted many of my buyers in reviewing and interpreting these documents. The PR (Preliminary Report) is essential for the home buyer to review, so they know just what they are buying and assurance that they will hold clear title if they move forward with the transaction. If there are any issues they must be remedied before the property closes.

As a home buyer in a transaction you need to be aware of who your title insurance company will be. It is your right as a home buyer to negotiate who will be providing you with this service. I asked Mark what are some of the things to look for when selecting a title insurance company. He stated, "You want to look at the company's track record, and financial strength. Also you want to make sure they have a local presence and have experience working with your type of transaction."

There also have been changes in legislation in title insurance with the implementation of Senate Bill 133 (aka SB 133) which took effect January 1, 2009. Last year, if I was having lunch with Mark like I'm today, he would probably be "footing the bill". Today I will have to pay for my $9 lunch without his assistance. The reason is SB 133 regulates the title insurance business by not allowing representatives to "buy their business", which was intended to create a level playing field in title insurance sales. Mark mentioned that in the past there where no limitations. Insurers where buying the allegiance of real estate agents by offering skyboxes, expensive marketing materials, sponsoring parties and fine dining to win the business of agents that were referring their services. Those days are now over since the title insurance business now requires a license, and is governed by the California department of insurance.

As you can see title insurance is not something that should be looked over. It is probably the most critical aspect of transaction. If you can't have clear title or insurance that you have clear title, what's the point in purchasing real estate? Mark ended our lunch by telling a story about a transaction that he was involved in several years ago. They had discovered that there was break in the chain of title on a transaction, and they requested the borrower to provide documentation so they could validate proper ownership. The borrower failed to provide the necessary documents and they decided not too insure the transaction. The borrower ended up finding another title insurance company that didn't ask as many questions that apparently insured the policy. A few weeks ago the San Diego district attorney cited that borrower for forgery of the deeds, the borrower pled guilty, and the title insurance company has previously gone out of business.