I was at settlement on Monday and the buyer asked me if he needed to buy the owner’s portion of the title insurance for a premium in excess of $1,000.   I explained to my buyer that the lender required that their portion be purchased (an additional $650).  The lender wanted the mortgage amount to be protected from any unknown defects in the title being conveyed.  The lender ignores the portion related to the buyer’s equity, so it did not require protection. 

My buyer was a little agitated because he viewed this cost as a waste of his money.  After all, the settlement company had just done a title search and found “no problems”.  There are many ways to discuss this issue but I like the simple one I have heard many times.  Let’s suppose you have a title problem when you go to sell – an unrecorded deed, an easement issue, a fraud claim or whatever.  You will have to hire a lawyer to straighten out the problem.  You will have to take your time to meet with the lawyer, to explain the issue and provide documentation.  The lawyer will spend time reviewing the case material, getting up to speed, doing research on the issues, chasing down documents, locating files in offices of title companies (some may now be closed), or at the courthouse.  All of this time is going to be on billed to you by the attorney at $200 to $350 per hour. 

If you have to go to court to resolve the dispute, defend a property title issue, or answer counter claims about the property, you will incur very large legal bills – perhaps $10,000 or more. 

Although the likelihood of a future title problem is small, they do occur, they are complicated, they take a long time to resolve and they are very annoying.  I think, therefore, that it is hard to beat a price of $1,000 for peace of mind over the life of your property ownership – say 25 years.  So I advised my buyer to think of it as $40 per year over his occupancy period – less than $4 a month.  I own several properties and I obtained title insurance for all of them.  I sleep easier at night knowing that my insurance agent is up worrying about all that could go wrong.

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