Wednesday, December 5, 2007

The Importance of Purchasing Title Insurance

The Importance of Purchasing Title Insurance
Every day, buyers put in offers on Philadelphia Condominiums they would like to purchase. Such offers are usually contingent upon certain inspections such as a termite, mold, or home inspection. This is a great idea especially because purchasing a home-whether it's an Old City Loft or a Rittenhouse Square Condominium-could be the biggest and most important purchase of someone's life. But for some reason, no one ever seems as concerned about the condition of their new condominium's title. Most people may not even realize that purchasing a home with a "moldy" title could end up causing you more financially, not to mention emotionally, than having to replace a roof.

Before I continue, let me explain that in the State of Pennsylvania, title insurance is a standard rate based on sales price and regulated by the "Title Insurance Rating Bureau of Pennsylvania" as you can see on most title company websites like this one: http://www.rcatitle.com/. Just Click on the "title calculator". Depending on the transaction, whether the condo or home had a title insurance policy in the last 10 years or if it is a new construction or condominium conversion you may be entitled to a discounted rate such as reissue rate (a 10% discount) or substitution rate (a 20% discount).

Another important factor here is that if you are obtaining a mortgage to purchase your condominium or home, your lender will force you to obtain a "lender's title insurance policy" based on loan amount but you will not be forced to obtain an "owner's policy". Most of the time, your loan amount is very close to your purchase price so if you must obtain a "lender's policy" it would be very silly not to spend the extra hundred or so dollars to go ahead and purchase the title insurance policy for the entire purchase price. For example: If your Society Hill condominium purchase price is $500,000 and your loan amount is $470,000, you would be forced by your lender to pay approximately $2710 for title insurance that only protects your mortgage company, not you. If you decided to obtain an owner's policy for $2860, both you and your lender would be issued an all-inclusive policy that would cover you and/or the lender in the event that a problem came up on your title. That is the best $150 you can spend, in my opinion!

I know most people arenot 100% sure what title insurance actually covers?" Let me give you a few scenarios I have encountered while working with a title company:

Perhaps you are purchasing a brand new construction condo in Old City. Well, perhaps the builder obtained a $2 Million mortgage to rehab the building. If you purchase title insurance, your title company will force the builder to pay a substantial amount of the mortgage which will then force the bank to give your title company an original "Partial Release of Mortgage" to file a on your unit with the City of Philadelphia Recorder of Deeds. What this means, is say Unit 302 (your unit) will be released from any and all responsibility for the balance of that mortgage. If for some reason, this does not occur and the builder never pays his mortgage in full, when to sell your unit in 5 or 10 years, an unsatisfied $2 Million mortgage will show up on the new title report and you will not be able to sell your unit until that mortgage is released with the City of Philadelphia Recorder of Deeds.

Let's say that same newly constructed Old City loft produces a clean title at closing. No liens, no judgments, all taxes are paid. Well, not that you see the clean report, you decide only to pay for the lender's policy and save yourself $200. The report was clean so there is no reason to pay extra for nothing right?.....wrong. Let's say the sub-contractor still hasn't gotten paid for work he completed in your unit 3 months before you bought the place. Guess what? If you didn't purchase an owner's title insurance policy, the sub-contractor can place a lien against your specific unit and guess who will be legally responsible for that lien. And if you don't pay it, you will also be responsible for the interest and penalties and court costs and you may be required to show up for a small claims hearing. Your credit may even be affected. The only way at that point to try and get your money back would be for you to file a lien against the builder you purchased from-that is, if you can find him at that point.

Another scary situation most people do not think about is the fact that the person you are buying from may not be the rightful owner of the loft or condominium you are purchasing. Perhaps, the owner passed away and left the home to his or her heirs in a will. In that case, the title company would review the will and make sure the will was filed correctly and be sure that every individual that may be entitled to a percentage of the home signs the deed and has their original signature notarized. Not to mention that any and all inheritance tax that may be due and payable is accounted for, collected, and paid. Unpaid inheritance tax is something that could come up as a lien or judgment against your Society Hill condo years down the line and with no title insurance, you would be held responsible to pay it as the owner of record. Not to mention the fear of a long lost son or daughter of the previous owner that you may not have known about coming along and claiming to have rights to a percentage of ownership of your home.

Powers of attorney can get pretty tricky too. Again, I think the best bet when dealing with a seller that wants to use a power of attorney, is to get a title insurance company to insure the transaction. The thing here is that if "Jane" has power of attorney for the actual owner of the property being sold, "John", you want to be sure that everything here is in order. I once encountered a situation where the actual homeowner, John had passed away. His passing actually made Jane's Power of Attorney null and void. Jane went ahead and sold his property here in Center City Philadelphia anyway. She signed over the deed to an innocent buyer and the documents were recorded with the City of Philadelphia Recorder of Deeds. The buyer moved in and got himself settled and bought new furniture only to check the mail a few months later and find a letter from an attorney representing John's wife (not Jane, Nancy) asking him to get out of her house or pay her for it. Since she was John's sole heir, the house was hers and Jane did not have any right to sell it. Because the buyer was smart enough to have purchased title insurance, his title company was able to negotiate a deal with Nancy and her attorney and pay her a lump sum to rightfully sign over the house to the innocent buyer. I wonder what would have happened to him had he not purchased that title insurance policy? I hope I never have to know.

In conclusion, I'd just like to say that as a buyer, the title company works for you. Sellers or mortgage companies in Pennsylvania are not allowed to bully you into using the title company of their choice. In Pennsylvania, you will receive the same insurance policy for the same price no matter which comapny you choose. Go ahead and shop around. Look for a title company like Trident Land Transfer. They don't have any closing fee. You may want to see some references as well or maybe take a look at the company's history and find out which is their underwriter. Whichever company you decide to use, I urge you to go ahead and protect one of your biggest investments and purchase that title insurance policy. Remember, you wouldn't buy a home with a bad foundation, so please don't buy a Philadelphia Condominium or any other home with an "unstable" title.

Mark Wade has been selling Philadelphia Condos and Lofts for 19 years and is a Realtor with Prudential Fox and Roach Realtors in Society Hill. www.CenterCity.com . If you would like additional information about title insurance or any other settlement related topic, free to give him a call at 215-521-1523 or send him an email at Mark@CenterCity.com

No comments: