Homebuyers Alert! Title Defects Without Coverage
Are title defects covered?
The cost of owner’s title insurance can surprise many homebuyers, tempting them to waive coverage without having a clear understanding of its protections and the ramifications of leaving the closing table without it. Many homebuyers wrongly assume that title defects are expected to be uncovered by the title company, and should an issue arise, they wrongly assume that they will have recourse against the settlement agent (a.k.a, title company). These assumptions are wrong for a few reasons, starting with the fact that most purchase contracts, including the GCAAR Regional Sales Contract (GCAAR Contract), provides a release of liability for damages due to a defect in the title.
What does a title policy cover?
Specifically, the GCAAR Contract states: “Broker or any agents, subagents or employees of Broker, and Settlement Agent are hereby expressly released from all liability for damages by reason of any defect in the title.” Furthermore, while the settlement agent may be an attorney, there is no attorney-client relationship between the homebuyer and the settlement agent but rather the settlement agent is acting as an issuing agent of a title insurance policy, underwritten by a national title insurance company. This means that the title search they procure is for the benefit of the settlement agent and their title insurance underwriter and not for the benefit of the prospective insured homebuyer. But even the most thorough and complete title search does not necessarily reveal underlying title defects, which is where owner’s title insurance coverage comes into play.
Contact us for more information:
Homebuyers should understand that the cost of owner’s title insurance is a one-time premium paid at the time of closing and that cost can often be reduced with the help of our attorney-staff at Federal Title & Escrow Company. Contact us at [email protected] with the property address and we will research the property to determine whether you may qualify for a reduced title insurance premium.
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