|
Title insurance—A home owner's assurance Title insurance is a vital step in buying a home By Phil Zinkewicz
Anyone who has ever purchased a house knows how complex and often frustrating the entire process can be. Of course, finding a reputable real estate agent who can show you available properties is the first step. After you’ve found your dream house, however, there are the lawyers to contend with—one for the buyer, one for the seller and one for the lending institution. The lawyers talk to their clients first, then to each other, in order to construct appropriate contracts that will satisfy all parties. When all this is done and the agreed-upon contracts are in place, a title search must be conducted to examine ownership of the property and determine whether any encumbrances exist that would prevent the free and clear transfer of title to the new owner. The title search may well be the most important part of the home-buying process. It reviews all recorded and filed documents to uncover any judgments, liens, taxes owed, street easements, special taxes and levies, and other matters that could have an impact on the status of the title. When the search is completed, the buyer purchases title insurance for the lender and also for himself or herself. During a refinance transaction, a title search is still required by the new or existing lender to uncover any problems that may have arisen since the last title insurance policy was issued. Firms that do title searches are called “abstracters,” and sometimes they act also as agents for the buyer, obtaining the title insurance needed through a licensed carrier. One such title search firm is the Brooklyn, New York-based Home Abstract Corp., which opened its doors in November 1977. Nunzio D’Addona founded the organization with a staff of five, including his wife, Virginia, his son, Robert, and his sister, Grace. Nunzio came from humble beginnings, working as a shoeshine boy and a candy store clerk at age 15, until a friend mentioned a job opening in the title insurance industry. Off to Home Title, where Nunzio got the job and started as a clerk. Over the years, he rose to become a top sales executive. Then he decided to go out on his own. “The title insurance business has seen some tremendous growth over the years,” says Larry Samaris, vice president of Home Abstract Corp. “In 1977, there were a handful of abstract companies in Brooklyn; today, there are more than 75. In 1977, Home Abstract Corp. had five employees; today we have 34.” Changing times Samaris himself joined the firm only a year after its founding, so he has seen considerable changes in the title insurance industry. “The real estate market has gone through periods of boom and bust since then,” he says. “In recent years, we have seen a boom like never before, and that has attracted some new players into the title insurance industry. But some of the new players don’t stay around too long. In many cases, the new players are understaffed and can’t execute a proper search. Their claims go up, and the title insurance company drops them. “Our staff is large, and we employ the latest technologies in doing the searches,” Samaris continues. “We do all the legwork for the title insurance company. We conduct in-depth searches to determine who actually owns the property being transferred, what outstanding taxes are applicable, whether there are any other parties that may have claim to the property being transferred. We do these searches in-house because we feel we can have more control over the quality. When we are satisfied that the seller has the absolute right to transfer the property to the buyer, then we arrange the insurance coverage through First American Title Insurance Company of New York. The insurance coverage is there for the mortgage lender and the buyer so that, if something has been missed in the search, whether through our fault or not, the insurance company will pay the claim. Our claims experience is very low, and we enjoy a strong relationship with First American Title.” Samaris is correct in his assessment that the title/abstract industry is in strong shape. According to James R. Maher, executive vice president of the American Land Title Association (ALTA), the association boasts approximately 2,700 abstracter/agent members countrywide. ALTA is a full-service association, providing federal lobbying, education, research, standard setting, meetings, communications and public relations for the title industry. ALTA is most commonly known for its development of the near-universal title insurance policy and endorsement forms. “There are many different estimates regarding the total number of agents (including attorney-agents) in the country,” says Maher. “Some would say there are perhaps as many as 8,000 or 9,000 abstracter/agents and another 25,000 attorney-agents. The past few years have been record years for the industry in terms of gross revenue and profits. This has mirrored the tremendous refinancing and resale real estate business. Current financial data, while still strong in historical terms, suggests a flattening of revenues and a lowering of profits through at least the first half of 2005, with a slight uptick in claims.” Maher underlines the connection between the title insurance industry and the real estate cycle. “With rising interest rates, the refinancing craze is slowing substantially and may return to more proportionate levels in terms of the general business mix,” he observes. “Resales remain strong, however. This kind of business has traditionally been a stronger portion of the product mix. While the general real estate cycle appears to be slowing somewhat and the second half shows spotty slowdown in certain markets, both coasts remain very strong and the 2005 year, as a whole, may be comparable to the very strong 2004.” Title policy is vital Samaris says that the insurance portion of his business is as important as the title search itself. “If the search is done properly, then the chances of having a claim are minimal; but sometimes an element of the search can go wrong, and that’s where the insurance kicks in. We provide the insurance policy to protect the bank and a separate one to protect the home buyer, to cover his or her investment. Banks insist on a mortgage policy. The owner’s policy is optional for the buyer, but we would tell the home buyer that he or she would be crazy not to have the coverage.” In those states that do not mandate an owner’s policy of title insurance, Maher says, abstracter/agents should forewarn the home buyer of the possibility of serious difficulties down the road. “It is standard procedure in a home purchase or refinancing situation for the lender to require an insurance policy to cover the mortgage loan. However, an owner’s policy is optional in many states, and many homeowners either don’t know about it or don’t think they need it, which leaves them vulnerable.” Maher says that many unforeseen problems can occur that could threaten the title to a property, even if a proper title search was conducted. Examples include mistakes in the public record, previously undisclosed heirs claiming to own the property, and forged deeds. For home owners who purchase an owner’s policy for a one-time fee at closing, the title company will negotiate these problems with third parties and pay the claims and legal fees involved in defending the title, Maher says. To make his point, Maher cited the following case histories: • A fraudulent realty company searched public records to locate a property with out-of-town owners and forged and recorded a deed to a fictitious person. They then sold the property to an unsuspecting buyer, providing a notarized deed, also fictitious. When the real owners discovered what had happened, they immediately initiated legal action against the new owners, claiming title to the property. The owner’s policy protected the buyer by paying all legal expenses and the claims by the out-of-state owners. • After receiving a house from his late mother, a man sold the property to a new owner. After the sale, the brother of the seller came forward to claim an ownership interest in the property and sought a substantial amount of money as his share. Since the new owner had obtained an owner’s title insurance policy, the title company paid the claim along with an additional amount in legal fees incurred during the defense, allowing the new owner to remain in the house. • A couple purchased a house from a widow whose husband had died without leaving a will. Soon after the sale, the son of the late owner by a former marriage came forward to claim his share of the house, which resulted in an expensive problem for the couple who had purchased the property. An owner’s title policy protected the couple by paying the claim from the missing heir, and they were able to keep the house. “In each of these examples, the home owners could have lost their home if they hadn’t purchased an owner’s policy,” says Maher. Samaris says that abstracter/agents who do not insist that the home buyers purchase owner’s title insurance are just not doing their jobs properly. “In our arrangement with First American Title, we provide the buyer with lender’s insurance at a reduced premium if they purchase the owner’s coverage.” Every insurance policy has exclusions, and Samaris says that a title insurance policy is no different. He said exclusions may include boundary line disputes; easements or claims of easements not shown in the public records; taxes or special assessments left off the public record; claims of people who turn out to be living in the house, such as a prior owner’s tenants, if their being there isn’t a matter of public record; unrecorded mechanic’s liens, and mineral and/or water rights. To protect against these and other risks, Samaris says, the home buyer can purchase extended coverage. “The title insurance business is complex, and title insurance is extremely important,” says Samaris. “For many people, a home is a once-in-a-lifetime purchase. Finding an organization such as ours right at the start that can provide a comprehensive search and comprehensive insurance coverage will eliminate nightmares later on.” * |
||
|
