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March 6, 2007
Title Insurance: Insurance that’ll get you sued
Today’s class was given by a 30 year veteran in the title business. Title offices here in Utah are generally used when one closes on a house, with the buyer and seller both paying a smorgasboard of fees for intangible services such as ‘title insurance‘. When I closed on my house, we paid nearly $1,000 to the title company, prices which most buyers refer to as part of their normal closing costs.
The instructor began by complaining that Utah has some of the cheapest title fees in the nation. He then mumbled: “Some people think there is no money in title research, I think they are wrong.”
We were then given the exciting disclaimer: “Believe it or not this might be interesting…but the topic is boring.” He then started out explaining the bundle of rights which real estate encompasses, and explained how such rights are subject to city, county and federal laws.
I should add, that while this school allows students to choose their own schedules for the most part, they do have a select group of required classes which we must attend, this was one of them. I expect that this is done for the purpose of granting these guest speakers a captive audience. They have a vested interest in us using their services, so they come and speak to the new crop of agents upon whose business they rely upon.
We were told that Utah is unique in that all of it’s records are held by the county. He then surprised my by saying that utahcountyonline is the most advanced land records technology system in the nation. Having used it before to try and look up records, I can testify that the website is by far one of the buggiest databases I’ve ever tried searching. It gives frequent database errors, lacks a uniform method of searching, and is just plain confusing to the average user. “That website gives away all the information I have…anyone using that site can see the same thing I do” he glowed.
He then proceeded to outline how this great newfangled web technology has revolutionized the lands records process telling us hundreds of years ago, just like western movies portray, there was a land records office which was far more confusing and likely led to many gun fights…his hypothetical was interrupted by an elderly woman who stammered “how do they…how do they work if there is more than one land office? I’m so excited…so glad that you’re here.”
Clearly she didn’t catch the end of his hypothetical based upon spaghetti westerns, they gunfighted if there was more than one land office. I swear some people just don’t listen.
Moving on, he told us that out of necessity (or perhaps people got tired of gunfighting) legal descriptions and land records emerged and all real estate began to be done in writing. He then gave the class a handout. Everyone but me. I worried. Were they on to me?
We’re then invited to read through our handouts while he washes the white board. Everyone does so, but I find myself too distracted to bother interrupting and asking for a handout. You see, he was working tirelessly to wash the whiteboard, which was already clear. He spent at least five minutes wetting napkins, rubbing the board, throwing them out then repeating the process. I suppose I have a bit of OCD myself, in that I find it fascinating to see people do pointless things repeatedly because they cannot help themselves. After at least 30 cleanings, he finally seems content and continues teaching.
Or at least he tries to, as he is quickly interrupted by his cell phone going off with a female voice soothing “someone would like to speak with you master…someone would like to speak with you master…” Technology is a great thing.
The instructor then explained title transactions by sharing with us a situation in which he recently been involved. A buyer was in the process of purchasing a large amount of land which brought with it certain water rights, along with an option on purchasing additional water rights for a very hefty price.
Due to an error on the part of the title company, they required the buyer to overpay by purchasing those additional (and in this case unnecessary) water rights for roughly $100,000 too much. He exclaimed that the seller was a lion in sheep’s clothing and that despite his best efforts, they had not been able to convince the seller to return the money. The buyer angrily asked “You can actually go home and sleep and night about this deal?” “Ya, the deals done.” responded the seller. Holy $#!@ the instructor commented.
At this point the class was quite sympathetic, with one student exclaiming “surely you can sue the seller” to which the instructor replied “Oh yeah, I’ve told him we’re going to sue”
Another classmate interjected “but isn’t the title company liable?”
And received the reply “Oh yeah, it’s all my fault.” He stated that although his underwriter would foot the bill for his mistakes, if they did not pursue legal action they could lose their company’s policy and be out of business.
Understandably, this caused the class some level of confusion. Particularly as the teacher continued telling us about another recent transaction in which his partner misread the date on a tax lien and they ended up having to pay the owed taxes after the transaction. He told the class that they were in the process of trying to collect the tax bill from the seller in the transaction, and were again contemplating suing the seller in order to regain the lost $1100. “Oh yeah, that came out of my pocket.”
“I make the deal good” he continued” but if a mistake is made….I go after you…I have the right..I buy the right” He then added “sebredation (sp?) means we can buy their position and sue the crap out of you”.
We were by this time all a little confused. It would appear that title insurance, at least through this man’s company, offers no actual insurance protection. That any mistake made would cause the title company to become litigant against either the buyer, seller, or both. This man had summed up Title Insurance for us. In effect, you pay the title company a large part of your closings costs in order to grant them the right to sue you.
He did admit on smaller errors that “it’s useless to sue…attorney costs $1000, and so I’ve paid lots of stupid little fees…Salt Lake is ridiculous…garbage and stuff…”
He even shared a anecdote about how when he first started contemplating becoming a title agent sharing his plan with his father, who was a normal insurance agent. “I got a job, you don’t do anything”, my dad said, “take it…it’s a racket.”
One of my classmates then raised his hand and asked: “I got a question, I understand title insurance…and it seems you’re saying that the insurance is worthless?”
Our instructor again restated his position, explaining that yes they will pay out when they make mistakes, but that they will go after the buyer or seller to recoup those losses in most cases. He then stated that it was our duty as agents to prevent his mistakes…to read everything and catch them before they happen. So apparently that’s the purpose for being a Real Estate Agent! To cover the Title company’s rear!
read comments (5)
March 6th, 2007 at 11:36 pm
Wow - every time I read your posts I feel a little less confident about becoming an investor.
I thought the title insurance people were supposed to be on my side as a buyer. Is there any way to choose a good title company? Unlike FSBOs, you can choose to do a title-by-owner…
March 6th, 2007 at 11:48 pm
I’d recommend making sure that you read all contracts before using a Title company. In Utah you have the luxury of selecting from a variety of companies, so go with the one that seems to offer the best protection.
March 9th, 2007 at 5:38 am
Its clear that the instructor didn’t explain the role of title insurance properly or the student didn’t understand the explanation.
A title policy protects the named insured, normally the buyer or lender in a transaction. If a defect in title is found after the policy is issued covered by the policy the policy acts to protect the insured either by eliminating the defect or paying the insured the loss. To eliminate the defect it may be necessary to sue the person who is causing the defect, be it an easement holder, judgment holder or someone claiming another interest in the property.
It may also be necessay to sue the seller of the property for breaching the warranties of title generally contained in the deed or for incorrectly asserting that there are no encumbrances on the title in the seller’s affidavit generally signed at closing.
Rarely will a title company sue an insured except in those cases where the insurer and insured disagree to whether a particular defect is covered by the policy.
It is not the job of the real estate agent to prevent mistakes by the title company. But mistakes do happen and if all the real estate professional (rel estate agent, title company, surveyor, appraiser, loan officer) work together, many mistakes can be caught and corrected be closing.
March 9th, 2007 at 11:13 am
pwalt:
It still seems odd to me that the title insurance companies consider litigation as a tool, particularly in the case of this instructor.
If I got health insurance, and my friend gave me a disease, would I want my insurer to sue the friend for getting me sick? Or worse, sue me for getting sick?
March 19th, 2007 at 12:53 pm
[…] was a required attendance one, and I believe the second one with a title agent. If you recall, our first required class had left us all confused as the agent declared that by buying title insurance, you were giving the title company license to […]