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Comment by HeyLaughingBoy | Hacker News Reader

My real introduction to Title Insurance came not when I purchased my first house, but as I sold it. The buyer was an experienced builder who was buying the house (in a fairly desirable area of the city where property was appreciating quickly) in order to add upgrades and flip it.

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.

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I do not buy title insurance on investment properties if the last owner had a mortgage. If the title commitment was good enough for the bank, it’s good enough for me. I build the potential clouded or impaired title into my risk model.

(I’ve also filed public comments with the CFPB on title insurance being junk fees [1], full disclosure)

[1] https://news.ycombinator.com/item?id=40524304

What if the latest owner has a contractor’s lien on the house for an unpaid bill?

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.

> I build the potential clouded or impaired title into my risk model.

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 tax stuff is all public record - easily verifiable. Deaths are also generally publicly verifiable.

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.

“Public record”. Yes.

Now tell me how you find the public record. When much of it is not on the internet?

Most municipalities now have online records as part of their recording keeping system. This includes all of the tax information about a property. Might even include records of various permits.

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.

“Most”? Citation please.

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.

> “Most”? Citation please.

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.

>What if the latest owner has a contractor’s lien on the house for an unpaid bill?

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.

None of what you state is accurate. What the title -search- will do is show you all of these cases which need to be cleared before insurance is issued.

Title insurance is not about the insurance, it’s about the scan.

>None of what you state is accurate.

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.

That's an interesting argument. My intuition would've been the opposite: the title is much more likely to be dirty. 3 quick transactions in under a decade (and a fourth ongoing) means that many more opportunities for problems. Each transaction is a new opportunity involving a whole new set of people to be engaged in fraudulent conveyance or have a spouse pop out of the woodwork (as mentioned in OP).

Maybe he figured that the real safety comes from there being so many other people to sue given all the transactions...?

Patrick's point about off-record transactions feels important here. Each on-record transaction leads to an opportunity for off-record transactions to be discovered! On-record ones are likely clean in some sense, whereas 10 years of no real estate on-record transations means nobody has looked.

But to your point... the more people involved, the more moving parts involved.

> Each on-record transaction leads to an opportunity for off-record transactions to be discovered

On the other hand, I would expect both types to correlate with one-another, tied together by a shared factor of "activity level."

The question is also who will be left holding the bag. If title searches over the past 10 years have turned up nothing problematic, then likely when the flipper sells, their buyer's title search won't turn up anything either.

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 flipper will be left holding the bag. The 10 years of prior searches won’t help you if the last owner snubbed a contractor and had a lien slapped on the house. Or a number of other scenarios.

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.

Insurance has negative expected value in return for risk pooling.

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.

That's fundamentally why title insurance doesn't pay out much. They exclude most defects that aren't discoverable and it's easy for everyone to find the defects that are. They are providing little actual protection hence why they pay out so little of premiums as claims.

What does he care? He’s flipping it. In the off chance there’s an actual title issue it’s unlikely to occur during the short time he’s holding

His buyer will also check the title before buying, so the point is that if there is an issue with title he won't be able to flip it.

If you are knowledgeable enough about the risk that’s great. For an average person buying a house things can and do go sideways:

https://www.houstonchronicle.com/politics/houston/article/ho...

The opposite might be true actually--in my state, squatter's rights apply once a person has believed they hold the title for 7.5 years (20 years if they don't hold a title)

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.

He also was probably not financing the purchase with a mortgage.

I’m very curious to know how many flippers are on the books with FHA. Definitely a nonzero amount. Who’s really checking up on owner occupancy? Like 4 overworked feds in DC?

FHA loans can't be used for investment properties. You must move in within 60 days and retain residence for one year.

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.

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