Recently, there was a bit of a scandal in the local real estate scene. A few individuals figured out a scheme to sell vacant properties to unsuspecting buyers.
The problem was that these people weren’t the rightful owners of the vacant properties. Instead, they faked death certificates of the real owners, and even appeared at settlement to sign as if they were the rightful sellers of these homes.
The good news is that these “enterprisers” got caught and are now facing several years in jail for fraud.
But… what happened to the poor buyers of these homes?
Well, to start with, the homes went back to their rightful owners. So the buyers ended up with no home.
Losing the home they thought was theirs is bad enough… but surely they might have gotten their money back?
Getting their money back depends on whether they got the right title insurance policy
An Owner’s Title Insurance policy would have covered the buyers for an issue like this one.
How can a buyer purchase a Title Insurance Policy?
To get a Title Insurance policy, the settlement company that performs the settlement first hires an attorney to do a title search. Then, with the results of the search, they prepare a title binder. With the title binder, they can go to their title insurance company and get a policy.
Prices of policies vary, of course, but as an example, the cost for an Owner’s Title Insurance policy is about $4.5 per $1000 of the sales price.
- For a $400,000 home, an Owner’s title insurance policy will cost about $1,800.
In this case, with an Owner’s Title Insurance Policy of about $1,800, the victims would have gotten their $80,000 down payment money back. (Phew!)
And what if the buyers didn’t purchase Owner’s Title Insurance?
If these purchasers weren’t advised properly and wanted to save a few hundred dollars at settlement, it’s possible that they only got enough title insurance to cover the lender (i.e. “Lender’s Title Insurance” ).
Lender’s Title Insurance rates are lower than for an Owner’s policy (about $2.50 per $1000 of sales price).
So if the victims only purchased title insurance coverage for the lender, then the lender would have been reimbursed for the amount of the loan.
- In our example of a $400,000 home, the loan could have been about $320,000.
But, unfortunately, with a Lender’s-only coverage, the purchaser doesn’t get any coverage above and beyond the mortgage price…
With only a Lender’s Title Insurance policy, the buyers would have lost dearly
Without an Owner’s Title Insurance policy, not only would the buyers be out of the home, but they would have also lost their entire down payment (in our example, that was $80,000). Ouch.
Oh well… at least the lender got paid…
As you can see, Owner’s Title Insurance is a great thing to have
Owner’s Title Insurance is a great thing to have because you never know when there could have been an issue with the chain of title of the home.
And if there was an issue with the title (even 100 years ago) that gets uncovered while you *think* you own the home, Owner’s Title Insurance is there to -at least- get you your money back.
So, what’s the good news here?
The good news is that the bad guys are behind bars
The other good news is that now you know one way to protect yourself from the hidden things that could cost you dearly when you buy a home.
How to protect yourself from The Hidden Things
By popular demand, we’re considering publishing a booklet with tips on How to Avoid Buying a “Lemon” House. If we have enough interest, we’ll publish it (and the first 30 readers who sign up this week – that’s you!- get it for free at the time of publication).
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