Summary: A home Title Insurance Policy is an insurance policy that you need when you buy land, or buy a house, build a new home, or sell a house.
Home Title Insurance can protect you from financial loss due to tax liens, contractor liens or other claims on the property.
Abraham Lincoln lost his home (twice) because he did not have Title Insurance! you could too.
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 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 policy at your loan closing. A lenders title insurance policy can cost as little as $100, or as much as 1% to 5% of the loan amount. If you want your own policy, called an owner's title insurance policy, the cost can range the same amount as a lender's policy, but it is based on the total cost of construction including land, or the total purchase price of a house that you are buying.
For a quick read and a primer on Title Insurance and Title Insurance Cost, and in order to pose intelligent questions when you do talk to a Title Insurance company here’s a link to the Wikipedia 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.
Hi Carl, I wrote to you months ago about my project. I took the plunge and am about 2 weeks from completion. My question concerns the subcontractor/supplier relationships. I hired 1 company to do my HVAC and plumbing. Their 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). The subcontractor's 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 subcontractor 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 South Carolina.
Yes Bob, I have encountered this situation. This scenario usually increases when the economy is down and businesses struggle.
Some states have remedied the problem and have protected homeowners by law. Many haven’t.
But, mortgage lenders have always protected themselves with Title Insurance and I am reasonably sure your construction loan lender had you purchase Title Insurance for them when you closed on your construction 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 you are saying?
Just as auto insurance, homeowners insurance, health insurance, etc. protect you, or the insured if it’s not you, against financial loss, Title Insurance protects whomever the insured is, usually the mortgage lender or construction lender against loss too. It protects from defects in title to real property (real estate).
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.
Check with a real estate lawyer or a construction attorney too.
Let me know how it goes.