With the growing concerns over foreclosures, unpaid taxes, bankruptcies and clouds on title, the need for title insurance is at an all time high. And yet every year a handful of purchasers waive their opportunity to purchase an Owner’s Title Insurance Policy.
While the number that waives title insurance is small – probably less than 1% of all of our purchase transactions – the excuses for waiving are often similar.
Our website provides an explanation of title insurance, but here are a few of the most common excuses used for waiving coverage, followed by the reasons why those excuses are unsound.
Excuse: “The sellers have lived there for 25 years. If there was a problem, it would have come up before.”
Debunked: Even though the seller has owned a property for 25 years, it does not mean that a defect does not exist – the defect could have been there all along. And new defects could have arisen during the prior ownership.
Excuse: “This is a new condo unit, so there’s no reason for title insurance.”
Debunked: Just because a condo or house is new does not mean that the property did not previously exist. Before the condo or house was built, the underlying property had a history. Typically, the property was part of a larger lot, thereby making the title chain even more complicated.
Excuse: “I know the sellers and they seem like a nice couple. I’m sure we can trust them.“
Debunked: Many title defects are not intentional and often they are not known to the seller. Plus, even “nice” people can commit fraud.
Excuse: “Since I’ve only put a few thousand down, I have no equity and no reason to get title insurance.”
Debunked: At first glance, this may sound logical: if a purchaser has put little to nothing down, then the purchaser has little or nothing to lose. However, with each monthly mortgage payment, the homeowner is paying down some principal and increasing equity. Without Owner’s Title protection, that ever increasing equity is unprotected.
Excuse: “Since I’m paying cash and not getting a loan, I don’t need to waste money on title insurance.”
Debunked: This logic is completely backwards. The potential loss to a cash purchaser is 100% equity. This is the most obvious example of when title insurance should be purchased.