Case study: Title insurance and cash-only deals

I was glad to see an article the other day in the Wall Street Journal that more closely reflects our experience in the Coral Gables, Pinecrest, Miami Beach, Key Biscayne and Key West areas. There is no doubt that the local Florida real estate economy is being supported by cash buyers whom are often either foreigners or “snow birds.”

Whether or not real estate prices have “bottomed out,” the fact remains that there are excellent buying opportunities for those with enough cash or credit to buy in this economic climate.

Cash buyers are often reluctant to buy title insurance since it is not required when paying cash for real estate. Title insurance is viewed as an esoteric commodity that’s imposed by lenders but doesn’t actually serve a purpose.

Thus, buyers paying cash for real estate who are not required by the lender to purchase title insurance often decide to forego purchasing title insurance which is always a bad idea.

I have a client who came to us after having paid cash for a beautiful vacation home in Florida. My client bought the home from a bank that had obtained it through a foreclosure proceeding.

Because my client viewed the title insurance as an added, unnecessary expense, he opted not to buy title insurance. After spending hundreds of thousands of dollars in remodeling his vacation home, my client received a summons and complaint from the previous owner of the home stating that the previous owner was never properly notified of the foreclosure, thus the foreclosure was void, and the resulting sale of the home to my client was also void.

A quick review of the docket indicated that a person with the same name as the previous owner of the property had been served and had filed an affidavit with the court stating that he was not the owner of this property and they had served the wrong person.

Had my client bought title insurance he would be protected for the amount of money that he paid for his vacation home, and would have possibly avoided the entire predicament, as a settlement attorney at Federal Title would have reviewed the foreclosure docket to make sure that all of the proper steps had been taken in the foreclosure.