It took me years to understand title insurance, but now I can tell you exactly how crucial it is to have
Clients often ask why they need title insurance. If the title insurance company searched the real property records, and found no issues, isn’t the client simply buying insurance to protect the client against the title company’s possible mistakes?
No. Only after years of reviewing East Hampton real estate titles did I understand title insurance well enough to explain it to anyone.
You buy title insurance to protect you against errors that can’t be discovered by the title company before closing. That’s it in a nutshell.
Here’s an example from my practice: Almost two years after closing, the client discovered that the surveyor had shown the property as larger than it was. In fact, the client was losing 12 feet of valuable waterfront property. The surveyor had simply made a mathematical error. At the end of the day, the title company gave my client more than $100,000 in settlement.
Let’s take a closer look at that scenario.
When you submit a survey to the title company, the title company is bound by the property dimensions as shown on the survey. No one knew before closing that the surveyor had simply made a mistake. In fact, the surveyor’s first survey from several years earlier had also made that same mistake.
When the mistake was discovered after closing, we could have brought suit against the surveyor. We had not missed the filing deadline (called a “statute of limitation”). But a court fight takes substantial time and money. And, after years of expensive litigation, we would get a judgment against a surveyor who might not be able to pay it.
Instead, we filed a claim with the title company. The title company brought in an appraiser to determine our damages. We received a substantial check within months. The title company could then pursue the surveyor without us. Keep in mind, however, that most people don’t discover surveying mistakes until they try to sell the property many years after they can no longer sue the surveyor. In that scenario, the title company remains liable.
That’s just one example of the importance of title insurance. I will save for another time examples of what happens when one of the parties intentionally tries to defraud the other.