Title insurance may sometimes look like a ripoff but only so long as you don’t need it. In case you ever wondered why anyone should voluntarily fork over “so much money” for title insurance if there are “cheaper” options out there, here is what can happen if something does go wrong.
This is a short list of surprises a title search may uncover, some of which only a title company can fix for you–one way or the other:
1) incorrect legal description in last deed
The deed may point to a wrong lot number or something might be missing from the description of the property. The title company will fix it for you before closing.
2) missing satisfaction of mortgage
The last time the property was sold, the seller may have paid the mortgage in full only the lender which was paid off failed to record a satisfaction of mortgage. The lien which was recorded against the property must be investigated and removed. A title company will do this for you.
3) a notice of commencement showing up (even though it shouldn’t)
A notice of commencement is a document recorded by a contractor (e.g. under Florida law) to protect his lien rights while doing a job on the property. In Florida, a notice of commencment is only valid for one year from the date on which it was recorded. If the property is sold or the mortgage refinanced during that time, this entry must be removed.
4) code violations
A homeowner who converts a garage into an extra bedroom without obtaining permits, fails to mow their lawn for an extended period of time or who parks his car inapropriately can be guilty of a code violation. If the violation is not taken care of timely the city will retaliate by putting a lien on the property. This must be taken care of before the property chenges ownership.
You may also encounter far more serious surprises, some of which could put the ownership of the property in question.
Quite a few scam artists actually succeeded in recording fraudulent deeds and then selling a property they did not own. A title company may not be able to uncover the fraud, but it does insure you against this possibility.
As far too many buyers had to discover the hard way, penny-pinching doesn’t pay off if the stakes are high. If any given deal does not leave you enough breathing room to protect the downside then it’s probably not worth pursuing in the first place.