Title Insurance

What is Title Insurance?

Dear Readers,

While most of us are familiar with insurance such as auto insurance and the like, most Americans are not familiar with Title Insurance. They have never even heard of Title Insurance.

It is a strange concept, and one not easily grasped at first, and there are very few people, even in the housing and mortgage industry that can explain Title Insurance and all its nuances.

I strongly suggest YOU learn the basics of Title Insurance and how it may, or may not protect you specifically from mechanics liens, both fraudulent and non-fraudulent, from subcontractors and/or suppliers in your state.

Unfortunately, every state has different lien laws.

The fastest, easiest and best way to get an overall idea of what Title Insurance is and how it will or will not protect your building project in your state is from the (a) branch manager, not a loan closing agent, of a Title Insurance agency in your state.

You can do it just before closing or as far in advance of building your house as you wish. It shouldn’t take more than ½ hour and it will be one of the best ½ hours you have spent. It will be FREE, as information about any products that are being sold to you should be!

You will be required by your lender to pay for their Title Insurance at your loan closing, but it is doubtful that anyone at your closing could explain what you need to know about Title Insurance.

For a quick read and a primer on Title Insurance, and in order to pose intelligent questions when you do talk to a Title Insurance company here’s a link to Wikipedia’s Construction Loan Title Insurance Policy page.

Below is a letter from an Owner/builder who typifies the need for Title Insurance when building a new house…regardless of who the General Contractor is.

From: Bob K.

"Hi Carl, I wrote to you months ago about my project. I took the plunge and am about 2 weeks from completion. (I promised photos). My question today concerns the subcontractor/supplier relationships. I hired 1 company to do my HVAC and plumbing. There references were good and prices competitive. The quality of the work is decent and the timing, while not perfect has been adequate.

They have been very aggressive about receiving their payments, and I have paid promptly after the work is completed. They are 95% done and I am holding back 800 dollars until completion.

This week I received a call from one of the suppliers of the subcontractor informing me that they intended to put a lien on my project because they had not received payment for some of my installed equipment. (About 2,000 dollars). The sub supplier asked me to pay them directly instead of the subcontractor.

Wow....Have you ever encountered this situation before. I have a signed contract with the subcontractor specifying equipment, work to be performed and payment terms. My initial reaction was to tell the sub supplier where to go, but I "acted" professional and listened.

I would like to know if you are familiar with this situation and what course of action I should take. I have no intention of paying the sub contractor the 800 until I am satisfied that the supplier has been paid. The sub contractor has been avoiding calling me back and I am not sure I can trust what they tell me anyways at this point.

By the way, I am building in SC.

Thanks,

Bob"

Yes Bob, I have encountered this situation in my work with my credit union clients. This scenario usually increases in numbers as the economy “tanks” and businesses struggle.

Some states have remedied the problem due to the housing recession in the 80”s, and have protected homeowners by law. Many haven’t.

But, lenders have always protected themselves (or should) with Title Insurance and I am reasonably sure your construction loan lender had you purchase Title Insurance for them when you closed on your loan.

That’s right; YOU paid for their Title Insurance. You may have also bought a policy for yourself but don’t know or remember…Unfortunately, no one pays attention to these things.

What’s Title Insurance many of you are saying?

Just as auto insurance, homeowners insurance, health insurance, etc. protect you, or the insured if it’s not you, against loss, Title Insurance protects whomever the insured is (usually the lender) against loss too. It protects from defects in title to real property (real estate).

Guess what? A lien is a defect in tile.

So Bob, notify your lender and the Title Insurance Company that a lien is forthcoming.

Explain the details and let them deal with it.

Tell the supplier that he will have to deal with the subcontractor and/or the Title Insurance Company.

Monitor the situation.

Let me know how it goes.

Carl