Working Title (Insurance)
bitsaboutmoney.com
bitsaboutmoney.com
Obviously therefore I don't need the insurance: in the very unlikely case title might be challenged I can always just sue the policy of the (now deceased) people who sold the house to me.
The title company of course did not like this. More importantly: they were the one conveying the title (a lawyer doesn't do this as happens in some other states). They said "we earn our money on this and if you don't buy the insurance we won't convey the title" (i.e. complete the change of ownership). And at least around here in Palo Alto only the title insurance companies handle this, at least according to my real estate attorney.
So basically I was required to pay an extra few hundred bucks for nothing. A true "junk fee".
It is pretty silly if CA requires a title company to do that. I have transferred titles in my state myself, here, I just take the title to the county and pay a small fee to have it recorded.
Over here it’s 2% plus 5% transfer tax plus generally 3.5% for the realtor (matched by the seller).
I doubt you could sue the previous owner's insurance policy.
Title insurance, at least in Canada, also protects against future actions, and not just past ones:
* If someone manages to do some shenanigans and convinces someone that they own your property, and gets a second mortgage/HELOC on it, and then not pay it back, which causes the mortgage/HELOC company to put a lien on it, title insurance protects against that.
* If someone manages to sell your house to a person who then shows up at your front door on the "closing day", expecting to get inside, title insurance protects against that.
The above can happen even though you own things properly, and got them properly from the previous owners.
Occurrences in Canada:
* https://www.cbc.ca/news/canada/toronto/prevent-title-insuran...
* https://www.mannlawyers.com/resources/a-review-of-title-insu...
When his agent asked why he had crossed out the line for title insurance, he retorted, "that property's been sold three times in 10 years. The title's clean."
I guess there was still some residual risk, but he had a point.
The only exception that I know of is if you buy and move into a multi-unit building and occupy one of the units yourself.
If you obtain an FHA loan, you are attesting an intention to comply with these requirements. Going into the loan with the intention of selling quickly (not occupying and or flipping in less than a year) exposes you to charges of fraud.
https://www.houstonchronicle.com/politics/houston/article/ho...
And once their eventual buyer buys the house, it's their problem (not the flipper's) -- well, their title insurer's problem -- if a title dispute comes up later.
And given that the flipper's goal is to hold the house for a relatively short time and make a profit on the improvements, a thousand or few saved on the title insurance could actually be a material amount of that profit.
The title company won’t issue the insurance if it finds issues like this. It will issue a list of items to clear before they will issue the insurance. It is generally up to the owner (eg the flipper) to cure the issues.
If something has a high level of importance in your finances or for other reasons, it makes sense to buy insurance. If you can handle the risk yourself (typically because the investment is not a terribly large amount of your total investments, and you do not think risk for this investment is correlated with risk to your other investments), then it doesn't make sense to buy insurance.
House flippers could be anything from very small one-person operations who would be wiped out if they had to clear a lien, to fairly large operations who can absorb the occasional risk into their costs of doing business.
Maybe he figured that the real safety comes from there being so many other people to sue given all the transactions...?
But to your point... the more people involved, the more moving parts involved.
On the other hand, I would expect both types to correlate with one-another, tied together by a shared factor of "activity level."
(I’ve also filed public comments with the CFPB on title insurance being junk fees [1], full disclosure)
Or if they are beyond on their property taxes? Or going through a messy divorce? Or get an unexpected large medical bill that finalizes as a financial judgement against them?
Clean title from other owners tells you only a limited story. The current owners can completely trash the title but still have an existing mortgage.
This is built into my acquisition price. Across hundreds of transactions, I have yet to experience a loss. I’m effectively self insuring against the risk, vs the cost I would’ve paid for title insurance (which would work out to tens of thousands of dollars in aggregate).
Property tax payment status, divorce cases, mortgages, and mechanics liens are all public record and can be searched for as part of researching a property. If the claim is public, I can settle it as part of the transaction on the settlement sheet with the settlement agent (who will disburse funds accordingly and handle recording/releases in concert with my real estate attorney). Unrecorded potential claims against the property are very rare in my experience. That isn’t to say it can’t happen, but only that if it does, I’m likely still coming out ahead over the long term.
The rest of the stuff would essentially require intentional fraud by the seller. You’d be able to recoup most of those costs via court. Annoying for a private individual, but I tolerable as part of a portfolio.
I’ll be real, you can pretty quickly tell the type of person you’re dealing with in a home sale. The people who have a tendency to “trash their title” also show other signs of untrustworthiness during the transaction.
Now tell me how you find the public record. When much of it is not on the internet?
If they’re not online, then they should have records in the municipal or county office. Might be a small fee to pull them, but they’ll have them.
If they don’t have records, then you may want title insurance.
I reality the dozens of Counties and hundreds of municipalities in just NJ are all different. Some online. Some not. Some online but with enormous time lag. Differing systems with different data. My township and a few dozen others were all coveted by a tax assessor who had an abomination of a Flash based web site that degraded to the devil’s own JavaScript when Flash not available.
Then you need to know the County system. And state system.
Then get into the courts. Court eFiling and search capabilities vary wildly.
In my town’s case you would need to do several on-site searches plus a few Internet based ones to do a proper title search.
Both places I've purchased from have utilized https://www.bsasoftware.com/. The municipal directory is here: https://bsaonline.com/MunicipalDirectory. In my current state 75% of municipalities are covered by BSA.
In my prior state, many counties used Ascent Land Records Suite
This site is essentially a search engine for Municipal data: https://www.countyoffice.org/
------
* Alcova, Wyoming (pop 34) - Covered
* Atlantic City, New Jersey - Links out to Board of Taxation, which has this search tool: https://www.taxdatahub.com/622e0489f94ca0ce44f394e3/Atlantic
* I could go on and on.
Reality is municipalities need to manage this data. These online portals are just a side-feature of municipalities needing to manage their tax base.
Not covered by title insurance.
>Or if they are beyond on their property taxes?
Specifically not covered by title insurance.
>Or going through a messy divorce?
Not covered by title insurance, nor would this scenario matter since the owners are known.
>Or get an unexpected large medical bill that finalizes as a financial judgement against them?
Not covered by title insurance.
Hope I cleared that up. Title insurance is a legalized scam with a market cap in the billions.
Title insurance is not about the insurance, it’s about the scan.
Everything I stated is accurate.
>What the title -search- will do is show you all of these cases which need to be cleared before insurance is issued.
No, because title insurance doesn't cover some of those things to begin with so title insurance companies and banks issuing loans couldn't care less.
>Title insurance is not about the insurance, it’s about the scan.
Yes, the scan they farm out to small software companies that scrape public records and return an "all good" if nothing shows up. This query is usually done by a teenager or early twenty-something in a call center with zero experience, just data entry.
So it would be better from this perspective to not have much buying & selling, as long as the most recent owner is trustworthy & has used the property for the past 7.5 years.
I'm inclined to disagree with this. One of those "not everyone doing it is up to no good, but everyone who is up to no good is definitely doing it" things. Obscuring ownership makes it a lot easier to evade the state in other matters.
The UK (and EU countries etc) has a register of "beneficial ownership" which attempts to untangle all such legal obfuscation efforts. https://www.ocorian.com/insights/understanding-uk-beneficial...
You cannot get much information on land ownership from public registers in the UK other than the name and address of the owner, and the name and address of any mortgage holder so the problem this solves does not exist in the UK either. There is a requirement that overseas entities owning UK property register their ownership, but that is all I know of.
That applies to breathing, eating, sleeping: not everyone who breathes is up to no good, but everyone who is up to no good is definitely breathing!
Event Sourcing with no snapshots.
However, this "if you think you own it, you probably do own it" has turned out fairly well. At least in most places in the US, unlike England, you don't have to trace all property transfers back to Norman Conquest in 1066 in order to know who owns land. Anyone who holds it long enough resets the baseline date at which you need to trace it back to.
The cases Patrick describes in this piece aren't really about adverse possession, but rather about property sales where the seller (or the seller's seller, etc) doesn't have the full legal authority to sell in the first place, and the people who do show up later to contest the sale.
The marginal cases are more common certainly, but the full version does happen. There's one that comes up on Reddit every so often of someone living in a home that had been abandoned in the 2008 crisis and presumably just written off by the legal owners (sounded like it had been owned via multiple levels of bankrupt property companies) for long enough that they claimed ownership, apparently successfully.
So if many years later, someone comes out of the woodwork to claim a fradulent conveyance, it doesn't matter. You lived in it and paid taxes as if it was yours for 10 years (or whatever), so either it's yours by conveyance or yours by adverse possession, and it's too late to undo the transfer.
Okay, so Bob owns a house. Bob marries Jane in an ill-advised, quickly ignored ceremony, but never gets formally divorced. Bob sells his house (in a community property state) to Ted. Ted lives in the house for 20 years. Jane dies. Jane's son Rick goes through her stuff, realizes that she was still married to Bob, realizes that Jane had a legitimate claim on the house that Ted has been living in for 20 years.
This is a classic adverse possession situation. Ted has been openly and notoriously living in this house, acting as owner. If Rick presses his claim, it is likely that Ted can win an adverse possession claim (assuming that Ted lives in a place where adverse possession still works the way it basically did in common law).
I am not a lawyer, this is not legal advice.
We have the same thing in England though.
[1] https://www.getagent.co.uk/blog/properties/house-sold-withou...
https://england.shelter.org.uk/professional_resources/legal/...
(I'm glad you said "England", because the Scottish system is different, and the Register of Sasines https://www.ros.gov.uk/our-registers/general-register-of-sas... got replaced with a modern database round about the millenium)
However, since this is New Mexico, and even the idea of formal record keeping here is, cough, rather recent, I only had to go back to 1980 for the purposes of the permit
:)
https://www.afr.com/companies/financial-services/nsw-product...
https://www.productivity.nsw.gov.au/market-study-on-econveya...
Just as frustrating, the title company knew about the claim before closing but didn't see fit to tell me. (They asked the seller to indemnify the title company—not me—from potential lawsuits, but the seller refused. The sale closed anyways, with none of this drama on my radar until well into the proceeding lawsuit.)
The reason the policy was worthless was that it had a very narrow definition of what constituted a title defect, and it would have involved another expensive, uncertain battle in court to try to establish that the lawsuit against me should have been covered. It was better to just eat my legal fees and treat them as part of the purchase price of the house.
"Fun" coda to this story was that about 9 months into the lawsuit, the Plaintiff and his family got hit with an unrelated Federal Civil Rights lawsuit. They own a hotel a few miles from my house, and instituted a blanket ban on Native Americans on the premises, because—in their words—"you can't tell the good Indians from the bad Indians." They put this policy (and their rationale behind it) in writing, if that gives you a hint as to the sort of legal masterminds we were up against.
The low-value, high-margin industry disappears, and presumably there are mechanisms built into the state to resolve problems.
I suspect it comes from a very similar logic to "why aren't wills centrally filed instead of random notaries and dueling documents?"
Pushing as much of the process as possible into the courts and private sphere is better strategy than having a blessed database. It gives people more opportunities to sort things out quickly and in parallel with other issues.
We have a registry in New Zealand: we don't need title insurance (I haven't heard of it but presume it is available). Unfortunately there are still plenty of other silly costs that remain: the lawyer conveyancing is still approx $1000, you must purchase a LIM in your own name if you wish to be able to contest certain failures of your local government, mortgages require property insurance, property insurers require a variety of expensive work (often pointless shit), you can't get the government cover except indirectly via property insurance, ... Fortunately we mostly don't use sellers agents but vendors agents still take 2 or 3 percent and agents require certification so it has aspects like a monopoly with little competitive pressure.
And the registry can be interrogated so privacy is a problem. Mortgage information also shows in credit reports so there's even less privacy with that sensitive information.
In TX, for every $1 collected by title insurance companies, the insurance companies paid out roughly 1-2 cents. 98-99% profit. [2]
I have honestly contemplated setting up my own title insurance company, advertise low rate title insurance but under the table give the buyer or seller half of the premium back to them.
[1] https://tdi.texas.gov/title/Titlerates2019.html
[2] https://www.texasobserver.org/entitled-to-profit-in-texas-ti...
The neighbor accused me of infringing on her property. I, in turn, proved (enough to the title insurance company, anyway) that the neighbor had also infringed on my property, and had done so in an invisible way (underground) since before I purchased the property. Since that infringement was not disclosed to me when I closed on the property, the title insurance company agreed to compensate me for that infringement to save the expenses of litigation.
At the end of the day, I ended up net positive to my own pocket as a result of their litigation. Unfortunately, a lot of lawyers made a lot of money in the process and everything (insurance, etc) ends up being more expensive as a result of crap like this.
An acquaintance performed a title search on another property going back to the 1100’s. They found a serious black and white error circa 1225 which voided the entire chain of claim. They did not report the error.
There are always gaps in emerging economies and this rule is one of the more useful ones to onboard assets into the legal system.
cfr. De Soto - Mystery of Capital
If this is the UK and the land-in-question is registered in the records held by the HM Land Registry, the black-and-white error is already void only recently-ish (Land Registration Act 2002 gave a 10-year "last chance" claims for very old deed errors, and the error you mentioned is now extinguished). Even if if was reported by your chap, HM Land Registry will just shrug because it literally has no legal effect now.
1400 EUR here in notary and government racket to change the number of shares in the company. Two paragraphs containing ultra basic math wrapped in legalese.
These 16 lines seems like they got a lot for $1400 compared to me. There's still way to go: the government rackets better and if they want to really sucker money in, they have to learn from the best!
You are paying for title insurance mostly to buy the expertise of a local title agent who knows how to look up things locally.
There is no national database that is up to date and trustworthy for this. To be even close to accurate, you need to check the source of truth for property deeds, transactions, liens.
You need to check various level of governments if taxes are up to date. If they are not, there may be an implied lien.
You need to check for financial judgements against the seller, which again may form an implied lien.
Divorces and similar issues mentioned in the article.
I am involved in an in-laws estate where a mom died without a will, a daughter was living in the house for free, and she and her husband had substantial judgements against them (hundreds of thousands of dollars). Resolution has involved the horrors of the surrogate’s court, multiple real estate lawyers, bankruptcy of the daughter, financial negotiations with her creditors and bankruptcy manager, surrogate administrator bonds, and repeated discussions with a bank holding a second mortgage against the property.
This has been ongoing for six years and is finally now almost resolved.
Most transactions will not have any of these problems. But you get title insurance - or run the check locally yourself, at least - because you have no idea who the seller really is and what they may have gotten into.
The author's point about real estate being one-shot for the buyer and seller is spot-on.
The rules in Hunterdon County, NJ are completely different from Detroit, MI and are different from Ossining, NY.
If you paid a guy in CA to run a title search in Hunterdon County, you’d be in a world of hurt. Because most of our records are at various Hall of Records. Even when computerized they are not on the Internet.
Even big places like Suffolk County, NY require a physical trip.
This is why the title agent gets nearly all the money. It is much more about the search than the actual insurance. As the author indicates, it is very rare for anyone to have to pay on a title insurance claim.
The government passed a law giving anyone with such a claim 10 years to record it in the title registry, and after the deadline any unregistered claims were extinguished. And the title registry is digital and (basically) authoritative.
Of course, that doesn't stop the people doing house sales paperwork from trying to charge you £50 for insurance that literally does nothing....
No longer true. Almost all title shops subcontract this out to small software companies that scrape public records and return an "all good" if nothing shows up. This query is usually done by a teenager or early twenty-something in a call center with zero experience, just data entry.
>There is no national database that is up to date and trustworthy for this. To be even close to accurate, you need to check the source of truth for property deeds, transactions, liens.
Sure there are, they're just private. Think LexisNexis.
>You need to check various level of governments if taxes are up to date. If they are not, there may be an implied lien.
Tax liens are not covered by title insurance.
As in, Title Search and Title Insurance could be treated as a Public Good and administered by a government entity (shock, horror!).
But people are making a lot of money off of it, so there is a bureaucratic moat.
That said, I've known people who regretted buying a particular piece of property, but I don't think I know anyone who regrets not having a landlord anymore.