In Closing...

R-E-S-P-E-C-T

Take my tax lien...please?!

Sometimes title insurance seems like the Rodney Dangerfield of the closing process — it gets no respect. Imagine some buyers at closing.

They’re looking at a number of costs — PMI, origination, escrow — and on top of all those, they find this fee for title insurance. “Do we really need this?” they may ask. After all, if they can save a few bucks here, they’ll be able to replace those avocado green Formica counter tops in the kitchen.

The quick answer is yes, buyers really need title insurance — especially if they enjoy sleeping soundly at night.

Last month, I came across a great real-world example of why title insurance deserves more respect. This gentleman from out of state was buying IRS-seized properties with cash, rehabbing them, then turning around and selling them. He’d purchased a home for $138,000 and was thrilled to find a prospective buyer willing to pay $160,000 for the property.

Imagine his horror, then, when our researchers discovered the home had four existing Ohio State tax liens on it totaling $85,000. Now the gentleman can’t sell the home without taking a major loss.

This illustrates two reasons why title insurance is well worth the cost:

- You get professional expertise. Title companies are your best bet for finding prior liens on a property. It’s what we do. If you buy a seized property from the IRS, as this gentleman did, or a foreclosed property from the sheriff’s office down at the county courthouse, how are you going to know you’re getting your property free and clear?

Checking titles isn’t the main function of the IRS or sheriff’s office. Nor is it likely your field of expertise, if you’re thinking about checking the public records yourself. It’s what a title insurance company does. And we take pride in doing it right.

- You’re insured if something goes wrong. This is key. It means that in the unlikely event that a lien wasn’t discovered on a property — like in the example above — you, the buyer, aren’t on the hook for it.

This is especially important given the number of foreclosure purchases currently taking place. Foreclosed properties can be tricky. In Ohio, if a lien holder wasn’t brought into a foreclosure case, the lien survives the foreclosure. Those surviving liens can sometimes be overlooked when a bank or other entity does a title search. With title insurance, if a prior judgment was somehow missed, or maybe a second or third mortgage survived a foreclosure and was never discovered, the buyer of the property isn’t responsible for paying the lien.

In closing -

Give title insurance some respect. After all, knowing you’re protected from costly surprises or mistakes can definitely help you rest easier at night — that is, as long as you don’t think too much about the avocado green kitchen.

For more evidence that title insurance is your friend in a foreclosure purchase, check out this scary CNNMoney article.

Scott Stevenson