We are often provided a copy of a Seller's existing title insurance policy and a disturbing trend for Buyers is appearing. As a cost cutting move, some title companies have stopped searching for all of the recorded rights that may affect the property being purchased.
If the title commitment and policy are based upon a complete search, Schedule B exceptions from coverage will only list specific matters that have been recorded in the public records and in some jurisdictions non-specific exceptions for unrecorded matters (i.e. survey issues). More and more we're seeing policies with exceptions taken for "any and all recorded covenants, conditions, restrictions (CC&R) and easements." This means that the title company did not search for these property rights. Lenders routinely receive special title coverage over these matters whether searched for on not. Buyers do not receive such coverage.
Most purchase agreements afford the Buyer the opportunity to review the CC&Rs and easements prior to closing and in some cases cancel the deal if they don't like them. If the title company is not providing that information, who is?
Secondly, if it turns out after closing that there are CC&Rs or Easements that restrict or prohibit the Buyer's intended use of the property who is the Buyer going to look to since the title company isn't insuring these matters? When the Buyers can't put their swimming pool in over an undisclosed easement, keep their horses, or put a manufactured home on the property, someone's going to get an unpleasant phone call and maybe more.
I find this a blatantly deceptive practice with serious implications for Buyers and their Realtors®. If a property right or restriction is recorded, the general expectation of our clients is that title policy will reflect that. Title agents engaging in title insurance "lite" do not disclose this practice. They are taking advantage of Buyers who often feel challenged to understand title insurance anyway. Realtors® and their clients do not need to accept this and are clearly within their rights to demand that the title coverage only except recorded property interests.
Select John Bethell Title Insurance Company, Inc., and you get the whole deal. We show all relevant recorded property rights. We do not provide "lite" title insurance.
Title Insurance "Lite" is prevalent throughout the Midwest. I am interested in hearing from Buyers, Realtors®, and title agents with an opinion about this.
Wow John...it's amazing how many ways providers of all kinds are trying to "cheap out" anymore. This could be a disaster.
Not to make light of it, but this reminds me of how fast-food sandwiches are getting smaller all the time while the price stays the same. Where will it end?
Suzanne, thanks for your comment! Certainly anyone the Buyer trusted in the transaction risks a big PR hit at the minimum. And yes, it is kind of like paying for the Big Mac and getting the little hamburger instead. - John
Thanks, John for your thoughts and your insight. As the owner of a small regional title abstracting company, I can attest to what you're saying. The outsourcing of title searches to overseas operations known as "thin" title plants in an effort to cut costs is also an issue that we abstractors have been dealing with for some time now, and the addition of your voice to this issue is very much appreciated. What surprises me is just how many real estate agents and brokers are unaware of this practice. Of course, if I were shipping the United States over to India one courthouse at a time the way "Big Title" is doing, I wouldn't be making a big public showing of it, either.
ActiveRain's own Lenn Harley summed it up best when she said:
"The title search is one of the most important transactions involved in buying a home. It's isn't the place to begin an economy drive."
Cutting corners to save money may seem an acceptable risk to the insurers, but in the end, it's the consumer who loses.
Scott, thanks for the comment! At first this practice was limited to loan policies on HELOC's and Refinances which I am OK with. When a few underwriters sanctioned the practice for Owner's Policies as long as no coverage was given, I couldn't believe it.
Wow, John. I did not know this. Can a buyer demand to use a certain title company or does he have to use the one His/Her Realtor directs them to?
Dan, that depends upon local custom. In Indiana, the Buyer usually delegates the selection of the Title Company to the Seller through provisions in the Offer to Purchase. The OTP however, does give the Buyer the opportunity to approve the status of title. Most of my Realtor customers take steps to protect their buyer in this situation and demand specificity.
John,
Couldn't agree with you more, in the St. Louis market things have been crazy here. A new bill was passed requiring each licensed agent to have CE every two years much like the REALTORS I hope that this helps with our local market.
Dan,
John is right it does depend on local customs but here is my thought process, is the agent paying for the title insurance, the appraisal or the lenders fees. Probably not, on the flip side of that though most consumers don't know what title insurance is nor what a title insurance company actually does, therefore, they trust the REALTOR's who I am sure has a great relationship with their respected title company. It's a tough call anymore.
Great Post, Good info to know. Thanks
John,
I wholeheartedly agree with you on this one. And to the earlier replies to your post. It is befuddling that title agents short shrift the facet that provides the most value to their product. The practice is shortsighted - and possibly perilous to the title agent.
In my opinion, it is worth a few bucks for any buyer or seller of real estate to be represented by a competent real estate attorney. It is a standard practice in the Chicago area market, and I am glad for that. A good attorney should be able to spot the inadequacies in the title commitment, and provide a number of other protections to buyer or seller. Buying a home is a big investment. Selling is a consideraable transaction, too.
In the Denver market, we've had issues with "lite" title companies. The real title companies are left with clean-up issues that aren't resolved by these sloppy, get rich quick entities. We are not an "attorney state" for our title work, so it's even scarier that these businesses are allowed to package themselves to the consumer as the "real deal."
Patrick - I agree with you. An attorney can help prevent a lot of problems. In Chicago, where one or the other attorney often issues the title insurance, I'd certainly want my own attorney making sure it was satisfactory.
Wendi - To a large degree its a Regulatory/Consumer Protection issue. I've yet to succeed though in getting anyone at the Dept of Insurance to agree. Colorado's DOI is pretty active. It would be interesting to hear their take on this practice.
Thanks for commenting on this post!
John,
I agree 100% with your blog-the majority of your blogs, in fact. We also don't take those shortcuts on our Owner's Policies; the buyer will know exactly what affects their property in regards to special, ongoing assessments, easements, retrictions, rights of way, etc. However, I am a bit disconcerted with your response to Dan on whether or not the buyer can close where they want to:
'Dan, that depends upon local custom. In Indiana, the Buyer usually delegates the selection of the Title Company to the Seller through provisions in the Offer to Purchase. The OTP however, does give the Buyer the opportunity to approve the status of title.'
If the buyer is going to be paying for a title policy (typically the lender's policy), they can close wherever they choose, provided the lender to be insured approves of the title company. It really isn't a matter of local customs...it is a part of RESPA Section 9. I welcome any insight you have as to why it may be different in Indiana. I'm thinking it is very likely because of the way the OTP is written (standard)?