6 Common Myths About Title Insurance

6 Common Myths About Title Insurance By Patrick Yu{3:30 minutes to read}  Anyone thinking of purchasing real estate has to deal with the quality of the seller’s title and title insurance. These subjects can be very confusing. In this article, we address 6 very common myths or misconceptions regarding title and title insurance.

Myth 1 – “Consumers cannot comparison shop for title insurance.”

The right of the consumer to shop for title insurance and select the carrier of their choice is protected by the federal law known as the Real Estate Settlement Procedures Act (RESPA). Consumers have a right to require their attorney to use the title insurance carrier of their choice. Not all title insurance carriers are created equal.

Myth 2 – “Most of a title insurance premium goes to commissions rather than insurance coverage.”

The expenses of a title search make up approximately 85 percent of the title insurance premium, according to insurance rating agency A.M. Best. Therefore, most of the expense is attributed to preventing loss in the first place. The cost of title insurance is a one-time fee as opposed to other kinds of insurance that charge a regular premium. When you compare the value of the asset to the size of the premium, title insurance is an excellent value.

Myth 3 – “Title insurance has the most expensive closing cost.”

Title insurance accounts for about 4% of all closing costs according to a 2007 Government Accountability Office (GAO) report. In comparison, brokerage commissions, government taxes and fees, and bank fees comprise approximately 89% of total closing costs.

Myth 4 – “The title insurance company insures the buyer in an owner’s policy against all title issues upon closing.”

Although many title issues are resolved prior to closing, such as clearing mortgages, and releasing liens, some title matters may not be insured, such as an encroachment, unrecorded easement, or water rights.  

Myth 5 – “The seller’s owner’s policy is enough to protect the buyer.”

The typical owner’s policy does not insure a subsequent buyer. For coverage under the seller’s owner’s policy, the policy must name the buyer as an additional insured, which is usually not the case. In addition, the seller’s owner’s policy would not cover the title issues caused by the seller that arise after the date of the policy.  

Myth 6 – “The buyer’s lender’s policy insuring its loan is sufficient to protect the buyer as well.”

The lender’s policy protects the lender – not the buyer. The buyer will have to hire his own counsel to represent his or her interests in the property.

If you have any further questions about title and title insurance, please feel free to contact us.

The Yu Law Firm, P.C.
A Professional Corporation
New York, New York 10016
Telephone: (212) 889-1506

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