Is Title Insurance Necessary?

One comment I often hear is that if you are not obtaining financing, title insurance would not be necessary. With all due respect, that is one of the most foolish comments regarding title insurance. The fact that you will be paying cash is when you need it the most. When a lender is involved (they mandate title insurance for a reason) you still have a compelling need to obtain owner's title insurance even if only 20% equity is at risk. When you pay cash there is a more compelling reason to obtain title insurance as 100% of your equity is at risk. Fortunately, title insurance is only a one-time occurrence.

I actually have an exclusion from my malpractice coverage. There is an exception for coverage if I close an arm's length residential real estate transaction without the issuance of title insurance. In fact, the Florida courts have deemed it to be malpractice if an attorney closes a transaction on behalf of a buyer when they are not protected with title insurance at closing. Courts recognize the necessity and issues that can arise. Perhaps the biggest problem that occurs most often is when a buyer goes to sell their property. Title examiners are lazy and only search back to the prior policy. A future title examiner will be convinced that you do not have a policy due to the fact your property must have been uninsurable. They then examine the entire history of the property and will apply today's title standards to yesterday's title concerns.

This past year I have been involved in nearly a dozen transactions where the seller had to provide a letter of indemnification from his title underwriter as a condition of closing. Unfortunately, without a prior policy to rely upon, the title examiner is required to go back to the original root of title and will punish the seller and look for issues they otherwise would never find. Unfortunately, at that point there is no protection, no indemnification letter from the present insurer.

It is not a matter of an attorney simply not doing their job correctly. I have closed approximately 20,000 residential transactions over the past 36 years and cannot express how often mistakes are made at the clerk's office. Just a few years ago I had a client served with foreclosure papers foreclosing on a valid lien. The clerk's office misindexed a valid judgment against a prior seller in the chain of title which had been certified in the sum of $85,000.00. No matter what was searched it could not have been discovered. I simply have seen too many errors, not just with the clerk of court but issues that arise between closing and recording. In another instance, I performed the title search which came back clean and the transaction closed. Unfortunately, in between the time of closing and recording, a tax lien came down against the seller. Without the benefit of title insurance the buyer would have been stuck with the tax lien.

In the category of these concerns are atypical, twice in the past year we had a closing scheduled and on the day of closing we discovered that the seller was an imposter. In both cases were tipped off by a notary seal that was from a different state then where the seller was located. I could list countless other times I have personally been involved with title claims but will not belabor the point further.

If this was 36 years ago when I began practicing law, I might have had the same reservations as many who question the necessity of title insurance. Unfortunately, over the years, I have witnessed title issues arise out of the most unlikely circumstances. Buying a property without title insurance is like getting in a car and not putting on a seat belt. Chances are that you most likely won't need it, until you need it. Unfortunately, if you do, the consequences of not having title insurance can be catastrophic!

If purchasers close through a title company they have no choice but to obtain title insurance. Closing through an attorney is no different as an attorney's opinion letter is only as good as the clerks who manually input the documents into the public records as well as the notary seal on what could be a bogus deed.