Title Insurance and Access to Property Records: Has Technology Usurped Need for Protection?
Monday, October 26, 2009
By: Jeffrey A. Rattikin
Monday, October 26, 2009
With more and more counties offering free access to real property records via the internet, many consumers are questioning the necessity of paying for professional title searches and title insurance protection when buying a home or investment property. In an era where consumers and legislators alike are attacking the perceived high costs associated with a property closing, every single closing cost is held under the microscope for justification.
Because the title insurance premium is typically one of the most expensive closing costs, its value and benefit to the parties are often the subject of intense debate. With free access to the public records, some consumers feel that they can satisfy themselves as to any risk by performing a little online due diligence. However, analyzing the nature and effect of a long string of legal documents affecting a property without specialized training and experience can often lead to an extremely unfavorable result, as a subsequent revelation of an undiscovered title defect can render a property investment worthless.
Most consumers hunting for property ownership information on their own will begin their search at the county Tax Appraiser/Collector’s website. If the property tax accounts list the selling party as owner, then many people feel that there is no need to dig any further. However, most individuals outside the real estate industry fail to understand that the tax account records have no bearing on the actual ownership of a property. While the tax account reflects the party who pays the taxes, only a complete search of the deed records will unveil the true legal titleholder to a property.
Even if a consumer is able to navigate his or herself through the cumbersome and antiquated organizational maze of instruments filed in the deed records related to a specific property, the consumer must then have a full understanding of the legal effects of each document in the chain of title to ascertain whether title to the property is free from any problems. Unfortunately, property owners have a bad habit of dying without a will, of divorce, of disappearing without forwarding information, of involvement in unlawful and fraudulent schemes, of participating in forgeries, of utilizing unenforceable documents, and having judgments, bankruptcies and the like filed against them and their property. Any of these issues can place a cloud on the title which can easily cause a real estate owner to lose their entire investment, or pay significant sums to cure the problems after-the-fact. Again, access to property information online can go only so far; only the close examination of the documents and the ability to discern solutions to title defects by a trained professional can limit the exposure of consumers to very real, and sometimes very sticky, consequences.
Hence, the role of the title company comes into play. Although not required by law, most real estate transactions do involve the services of a title company as a requirement of the mortgage lender, who will not fund a real estate loan without insurance that the title to the property is free and clear of anyone else’s claims. Not only will the title company research and investigate the title history of the property, but will also come up with a list of requirements and cures which must be met to clear up any title defects. Only upon title defects being cured will a title company be in position to issue a title insurance policy insuring to the buyer and any lender that the property is free from any unpermitted claims.
In addition, the title company plays the all-important role of neutral third party escrow officer, ensuring that documents are properly signed and recorded, as well as handling the flow of documents, funds and payoffs between the parties, lenders, payees and other service professionals.
Still, the one-time premium associated with the issuance of a title insurance policy is called into question at many closing tables. Without the protections offered through the involvement of a title company, however, how could a prudent buyer protect themselves from the myriads of problems arising from deaths, divorces, judgments, forgeries, bankruptcies, etc. of the seller or even a predecessor in title? The only real alternative would be for a buyer to retain the services of a knowledgeable real estate attorney to research, examine and analyze the title history to the desired property. Given the time required for an attorney to conduct this level of historical title research and closing services at normal lawyer fee rates, the attorney fees alone would be many times greater than the title insurance premium charged by the title company. Perhaps more importantly, if a mistake was made or a defect missed, the attorney’s opinion of title would only be backed by the limited consumer protections of a malpractice policy, rather than a title insurance policy issued directly in the name of the buyer by a multi-national title insurance underwriter. It is clearly evident that a consumer gets much more bang for their buck by utilizing the trained and professional services of a reputable title company.
The last attack on the necessity of title insurance is waged by those who point out that claims on title insurance policies for title defects are extremely low compared to claims arising from other perils protected by other insurance products. There is a reason for low claims rates: title companies research the title and cure the problems before a transaction is ever closed, thereby protecting the consumer from unknown perils and protecting itself from future claims.
In short, title companies play a vital role in facilitating the orderly transfer of real estate while protecting the health of the entire industry. Its value cannot be underestimated by consumers seeking a secure investment in this most precious of resources.
Copyright 2009 Jeffrey A. Rattikin, all rights reserved