Thursday, October 18, 2007

query: when not to buy title insurance

You should always buy title insurance. I would prefer that you be selective about the provider because competence in the examination phase means you are likely to not have to suffer through a claim process, BUT suffering through a claim process is far better than defending title completely on your own and with your dime.

Here's an example. I stumbled onto this case today through a Google alert. [Love those things.]

It's a lawsuit filed by First American Title Insurance Company seeking recompense for a title claim. It's a case in which the buyers had to suffer through a claim process but in the end they got to keep their house and their legal fees were covered. Kudos to First American for protecting the insured.

This case is in Tennessee. Each state has its own customs but reviewing the case the only I found odd was that the seller selected the title examiner. See if you can follow this....

Merrill is the buyer.
Harris is the seller and I have reason to believe also the builder.

It's a cash purchase at $345,000.00.

The seller selected or arranged for Paramount to perform title examination and closing.

Paramount order an abstract from Atkins.

Harris has TWO mortgages against the subject property. One for $200,000 and the other is a blanket mortgage which means it covers more than one property. The blanket mortgage is $248,000.

Atkins misses the blanket mortgage in the search.

Paramount proceeds to close the transaction apparently blind to the fact that there is another substantial mortgage lien against the property.

Merrill buys an owner policy. Merrill - YOU ARE SO SMART! This is a cash buyer who was smart enough to protect his $345,000 investment by paying a one-time premium of $815.00 for title insurance.

Bottom line, FATIC paid close to $300,000 to protect the title. Merrill made a wise purchase.

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