Title Insurance Only Helps
The common perception is that, if you’ve got title insurance to property, your title to the property is good, or at least you won’t take a loss. Title insurance does provide substantial protection. There is, however, a real issue on timing.
In my experience, the average time to resolve a title insurance claim is nine months to a year. If you have the property under contract to sell, and need the money from this house to buy your next one, nine months or a year is a very long time to wait, with no compensation for your delay, or for the loss of a buyer who would not wait. Therefore, title insurance is like good surgery after an accident. It may help you set things somewhat right, but it will be painful, time consuming, and you will wish that you had never had the accident in the first place. If you are interested in the issue of “Consequential Damages” not being covered by title insurance, here is an excellent recent article on the subject:
As long as title claims were exquisitely rare, this was a chance that everyone should have been willing to take. Land titles, however, are becoming more complex. The documents creating easements, liens, and similar issues can now amount to over a hundred pages, even for a home.
In the face of this mounting complexity, many title companies are cutting corners on their title searches, taking chances that they would not have dreamed of taking twenty years ago. The way they see it, they can pay for a few claims attorneys down the road cheaper than they can do things right on each transaction. Financial pressures on the industry give incentives to current executives to risk future claims by cutting costs now. They get bonuses now, but they will be retired when the claims pop up.
One particular circumstance in which a buyer should be particularly wary, is the purchase of foreclosed homes. The title policies are usually issued by the same firm that did the foreclosure. Such a firm is in a position of conflict. Looking at the title closely could cause a malpractice claim against the issuer. It is easier to write the title insurance and hope that nobody notices.
