Thursday, April 20, 2006

TITLE INSURANCE: Having spent over 20 years in the title business this article caught my eye. According to a 2005 member survey by the American Land Title Association (ALTA), title problems were found in 36 percent of all residential real estate transactions (new and resale homes and refinances), up from 25 percent in 2000.

According to Rande Yeager, president of ALTA, "The most frequent curative action taken last year was obtaining releases and/or pay-offs for discovered liens, such as prior or existing first or second mortgages, unpaid child and spousal support, outstanding taxes, and other judgments against the property." The next most common action was obtaining releases for assignments followed closely by recording errors of names, addresses or legal descriptions of the property.

In my opinion all of these curative items are daily "housekeeping" problems inherent to the business. Title companies rarely suffer losses due to these types of issues because they are easily discovered and cured. So where is the real risk in the title business and why is title insurance important to the consumer? Title companies take loses, sometimes huge, every year due to fraud, identity theft, etc. Two examples, one involving a seller and the other a buyer will illustrate my point:

Several years back I conducted a closing. The sellers were an elderly couple selling their home and relocating to be near the grandchildren. The buyers, a mother and son, paid cash. A nice clean deal, right? Wrong! Ninety days after the closing we received notice that the buyers had embezzled the funds used to acquire the property and legal action was forthcoming to retrieve the funds. In the absence of title insurance the sellers would have faced a long ordeal not to mention huge legal expenses. The title company negotiated a settlement and the sellers never new there was a problem.

In the early 1980's a prominent Houston mortgage banker's business was lending purchase money, secured by a deed of trust, to homebuyers and then selling the loans in the secondary market. All was well until homeowners began receiving foreclosure notices from lenders they had never heard of. The mortgage banker had sold the same loans to two, three or even four investors and eventually couldn't support the snowball. Texas title companies took enormous loses on this one.

Real estate involves lots of money. Anytime big money is on the line there's always someone trying to figure a way to get their hands on it. THAT'S why title insurance is vital to both buyers and sellers.

http://HomesInDurango.com
http://RealEstate-Durango.com

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