Title Insurance

luvflyin

luvflyin

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I’m selling a house. Owner financing. I’ll be providing a policy of Title Insurance to the buyer of course. The Title Company says I should get a Lenders Policy also. Never heard of that before and it didn’t come up another time I sold and financed. That was about 20 years ago. I’ve googled it and kinda get it. Looking for other input here.
 
I'd discuss it with a lending lawyer in your state. As you probably figured out, it's protecting your mortgage/deed of trust from title defects. If your buyer defaults and you foreclose, a title defect can preclude you from collecting. Likelihood of a problem? Well, as I recall, California is a state where title companies do title exams and closings rather than lawyers. Colorado is the same and I practiced in this area during the recession. I saw a number of situations where defects in title became a big problem. What was happening was that the "new" title company assumed the prior title companies did the job properly so only ran the title from the last purchase. Things missed decades earlier were discovered during the foreclosure search.

The thing that has me a little curious is that you are buying the policy(ies) for the buyers. In the banking world, the bank doesn't really care whether the buyer has an owner policy or not and the borrower typically pays for both the lender's policy and the owner's policy as part of the purchase. Perhaps there are some California rules about this?
 
I agree with midlifeflyer. This is highly irregular. Usually, the LENDER makes the BUYER buy a policy to protect the lender's interest. The BUYER is also well advise to buy a title to protect THEIR interest. If you want to pay for it, it's a matter of negotiation. I can't see I've ever seen a sales contract that puts it on the seller. Typically, if the seller wants to help things along, they provide some cash to the buyer toward all the closing items.
 
midlifeflyer said:
I'd discuss it with a lending lawyer in your state. As you probably figured out, it's protecting your mortgage/deed of trust from title defects. If your buyer defaults and you foreclose, a title defect can preclude you from collecting. Likelihood of a problem? Well, as I recall, California is a state where title companies do title exams and closings rather than lawyers. Colorado is the same and I practiced in this area during the recession. I saw a number of situations where defects in title became a big problem. What was happening was that the "new" title company assumed the prior title companies did the job properly so only ran the title from the last purchase. Things missed decades earlier were discovered during the foreclosure search.

The thing that has me a little curious is that you are buying the policy(ies) for the buyers. In the banking world, the bank doesn't really care whether the buyer has an owner policy or not and the borrower typically pays for both the lender's policy and the owner's policy as part of the purchase. Perhaps there are some California rules about this?
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That’s kinda what I got. It covers me if they make mistakes. I have to pay them to cover for their mistake. I’ll probably get it though if it’s not to expensive. The house is being sold in Washington. I’m providing Title Insurance for the buyer because it seem’s the right thing to do. Everytime I’ve been a buyer I’ve gotten one. Escrow fees were usually a 50/50 thing as I recall. I doubt if a Title Company would handle the Escrow otherwise BWDIK. I’m covering all the Escrow fees. Unusual I know, there are reasons.
I have done owner financed sales in California and Oregon. Now Washington. One thing I’ve noticed is there are fewer Trust Deed states now than there used to be. I assume that is fallout from the 2008 meltdown. In fact the more I think about it, Lenders Insurance may be the same.
 
Never seen an escrow company care. They just hold the money and deeds and prepare the HUD-1 and disburse the funds. Most don't care. It varies from state to state just who handles escrow. Some do it with a dedicated escrow company, some use a company affiliated with a title insurer, some just use attorneys.

I know of NO lender who would issue a loan on a property without the title search and a lender's policy (paid by one of the parties) to protect their interest.

Can't say I've seen any movement in the deeds of trusts vs. mortgages as security instrument in the past 25 years. Some states do one or the other or both. In states that permit it, lenders almost always prefer the deed of trust. Makes foreclosure faster and easier.
 
flyingron said:
I agree with midlifeflyer. This is highly irregular. Usually, the LENDER makes the BUYER buy a policy to protect the lender's interest. The BUYER is also well advise to buy a title to protect THEIR interest. If you want to pay for it, it's a matter of negotiation. I can't see I've ever seen a sales contract that puts it on the seller. Typically, if the seller wants to help things along, they provide some cash to the buyer toward all the closing items.
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Yeah, that’s pretty common when buyers counter offer. We want x amount of buckos toward closing costs.
 
Lender's title insurance protects the lender in the event there are flaws in the title, owner's title insurance protects the owner/buyer from the same. Usually, the buyer pays for both as part of their closing costs, but this can be negotiated. While title flaws are rare, title insurance is fairly cheap and, given my level of risk tolerance and the kind of money involved in the average real estate sale, is something I'd want.
 
Are you taking a mortgage or trust deed/deed of trust as part of your financing? If so, then yes, you (as Lender) absolutely should purchase a Lender's policy of title insurance for your own benefit.

In short, the Lender's policy insures 2 things: (1) that your Buyer/Borrower is the fee simple owner of the Property (basically insuring the deed against defects), and (b) that the Lender's (your) mortgage or deed of trust is a first priority lien on the Property (generally at least; this part can have some small exceptions to it). Lender's almost never pays for their own policies. What does your purchase agreement and/or financing document say about this? If you're paying for your own Lender's policy, a mistake was made somewhere.

I'm a real estate lawyer, but not your lawyer :)
 
1963!

I was preparing to buy my first house, a friend who had just graduated from Georgetown law school advised me to get both kinds of insurance. I did, and all went well. I learned later that the builder of my house had a large mortgage on the land under my house, but eventually paid it off. I was the third owner of the house, so it seemed I did not need insurance covering my interest in the value of the house.

Years later, he visited back in Washington DC, and told his tale of purchasing a home. He bought only lender insurance, as the builder had an impeccable reputation. Unfortunately, the farm being developed was sold to the developer by a person who had lived there for most of his life, but was not the owner.

Builder bankrupt, no houses finished by builder, replacement builder was more expensive, and my friend lost about 1/3 of his original price agreed to, in addition to owing the whole mortgage.

He was an honest attorney to tell of his mistake, rather than silently eat it.
 
flyingron said:
Never seen an escrow company care. They just hold the money and deeds and prepare the HUD-1 and disburse the funds. Most don't care. It varies from state to state just who handles escrow. Some do it with a dedicated escrow company, some use a company affiliated with a title insurer, some just use attorneys.

I know of NO lender who would issue a loan on a property without the title search and a lender's policy (paid by one of the parties) to protect their interest.

Can't say I've seen any movement in the deeds of trusts vs. mortgages as security instrument in the past 25 years. Some states do one or the other or both. In states that permit it, lenders almost always prefer the deed of trust. Makes foreclosure faster and easier.
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There are fewer Trust Deed states than there used to be. I found that out when searching to see If I could name myself as Trustee. I’ve done that in California. Luvflyin hereinafter Beneficiary and Trustee. Don’t know if they still allow that though. I sold in Oregon a few years ago. It’s not allowed there, Trustee has to be either a Lawyer or Title Company. I did a Mortgage instead. Lawyers/Title wanted to much money in my opinion to do it. Took me about 30 minutes to prepare a Mortgage and that’s because I type slow. Recording fee was pretty much the same as a Trust Deed.
 
luvflyin said:
There are fewer Trust Deed states than there used to be. I found that out when searching to see If I could name myself as Trustee. I’ve done that in California. Luvflyin hereinafter Beneficiary and Trustee. Don’t know if they still allow that though. I sold in Oregon a few years ago. It’s not allowed there, Trustee has to be either a Lawyer or Title Company. I did a Mortgage instead. Lawyers/Title wanted to much money in my opinion to do it. Took me about 30 minutes to prepare a Mortgage and that’s because I type slow. Recording fee was pretty much the same as a Trust Deed.
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Wait, you're preparing your own mortgage and financing docs (not using a lawyer)?
 
bradg33 said:
Wait, you're preparing your own mortgage and financing docs (not using a lawyer)?
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I started out that I would do it myself as I have in the past. Then things started seeming not as simple as they used to be so I decided to have a Real Estate broker handle the sale. She’s doing it for 1%. Me paying closing costs is my decision, no one is ‘tricking’ me into it.
 
luvflyin said:
I started out that I would do it myself as I have in the past. Then things started seeming not as simple as they used to be so I decided to have a Real Estate broker handle the sale. She’s doing it for 1%. Me paying closing costs is my decision, no one is ‘tricking’ me into it.
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I'm not sure if you're particularly open to advice on this, but my one last-ditch effort - please don't use a real estate agent to handle your conveyance and financing paperwork. Hire a real estate lawyer, not a real estate agent that pretends to be a lawyer, to draft your documents (particularly the financing ones). If your note or mortgage/deed of trust aren't properly prepared, you can really end up in a bad spot. Even some lawyers can't get the documents right, I certainly wouldn't trust a real estate agent to do it. It should cost far less than 1% of the transaction amount (pay hourly). If you were just selling, much less of an issue. But as a Lender, there are real, meaningful consequences if your documents aren't done correctly; don't trust that to a non-lawyer.
 
bradg33 said:
I'm not sure if you're particularly open to advice on this, but my one last-ditch effort - please don't use a real estate agent to handle your conveyance and financing paperwork. Hire a real estate lawyer, not a real estate agent that pretends to be a lawyer, to draft your documents (particularly the financing ones). If your note or mortgage/deed of trust aren't properly prepared, you can really end up in a bad spot. Even some lawyers can't get the documents right, I certainly wouldn't trust a real estate agent to do it. It should cost far less than 1% of the transaction amount (pay hourly). If you were just selling, much less of an issue. But as a Lender, there are real, meaningful consequences if your documents aren't done correctly; don't trust that to a non-lawyer.
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I’m open to advice. The agent is not preparing the Note and Trust Deed. That’s being done by the Escrow Agent at the Title Company. The Real Estate Agent prepared the Purchase Agreement. I’ll review the Note and Trust Deed before executing them. I’m assuming they will be be standard ‘long’ forms. Unlike ones I’ve done in past where I could squeeze it onto one page. I just might buy an hour from a Lawyer to review them. I have decided to get the Lenders Title Policy, it’s $782
 
luvflyin said:
I’m open to advice. The agent is not preparing the Note and Trust Deed. That’s being done by the Escrow Agent at the Title Company. The Real Estate Agent prepared the Purchase Agreement. I’ll review the Note and Trust Deed before executing them. I’m assuming they will be be standard ‘long’ forms. Unlike ones I’ve done in past where I could squeeze it onto one page. I just might buy an hour from a Lawyer to review them. I have decided to get the Lenders Title Policy, it’s $782
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You really, really should let a lawyer at least review the docs. I'm not YOUR lawyer, but I am a real estate litigation attorney and this is the space I work in day in and day out (a big part of my practice is nationwide large commercial mortgage foreclosures - think malls, office towers, etc. all across the county). I can't tell you how many times we run into issues with foreclosure or enforcement because the documents aren't done right. The docs we have the most problems with are the "Laser Pro" and other computer-generated form documents that non-lawyers (like smaller banks or title companies) generate, fill in the blanks, and sign. They're objectively terrible documents, rarely prepared truly correctly, and it frequently costs the Lender more money for us to fix the issues than it would have to just do it right on the front end. Banks get away with it because of their high volume, relatively low default rates, and the occasional screw up just gets swallowed up by the high volume of ones where the loans never default. But you don't have the benefit of a huge number of loans to offset a bad one.

Escrow agents are usually NOT lawyers (at least not practicing ones). Yes, they see financing documents all the time, and usually have some understanding of the basics (esp on the mortgage itself), but they rarely understand all the nuances, etc. That's just not their job. All they care about is insuring that the Mortgage creates a valid lien. They don't care of the other terms in your documents are well done, enforceable, etc.
 
bradg33 said:
You really, really should let a lawyer at least review the docs. I'm not YOUR lawyer, but I am a real estate litigation attorney and this is the space I work in day in and day out (a big part of my practice is nationwide large commercial mortgage foreclosures - think malls, office towers, etc. all across the county). I can't tell you how many times we run into issues with foreclosure or enforcement because the documents aren't done right. The docs we have the most problems with are the "Laser Pro" and other computer-generated form documents that non-lawyers (like smaller banks or title companies) generate, fill in the blanks, and sign. They're objectively terrible documents, rarely prepared truly correctly, and it frequently costs the Lender more money for us to fix the issues than it would have to just do it right on the front end. Banks get away with it because of their high volume, relatively low default rates, and the occasional screw up just gets swallowed up by the high volume of ones where the loans never default. But you don't have the benefit of a huge number of loans to offset a bad one.

Escrow agents are usually NOT lawyers (at least not practicing ones). Yes, they see financing documents all the time, and usually have some understanding of the basics (esp on the mortgage itself), but they rarely understand all the nuances, etc. That's just not their job. All they care about is insuring that the Mortgage creates a valid lien. They don't care of the other terms in your documents are well done, enforceable, etc.
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Thank you
 
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