Why Everyone Needs Title Insurance
Every day, buyers put in offers on Philadelphia
Condominiums they would like to purchase. Such offers are
usually contingent upon certain inspections such as a
termite, mold, or home inspection. This is a great idea
especially because purchasing a home-whether it's an Old
City Loft or a Rittenhouse Square Condominium-could be the
biggest and most important purchase of someone's life. But
for some reason, no one ever seems as concerned about the
condition of their new condominium's title. Most people
may not even realize that purchasing a home with a "moldy"
title could end up causing you more financially, not to
mention emotionally, than having to replace a roof.
Before I continue, let me explain that in the State of
Pennsylvania, title insurance is a standard rate based on
sales price and regulated by the "Title Insurance Rating
Bureau of Pennsylvania" as you can see on most title
company websites like this one: http://www.rcatitle.com/.
Just Click on the "title calculator". Depending on the
transaction, whether the condo or home had a title
insurance policy in the last 10 years or if it is a new
construction or condominium conversion you may be entitled
to a discounted rate such as reissue rate (a 10% discount)
or substitution rate (a 20% discount).
Another important factor here is that if you are obtaining
a mortgage to purchase your condominium or home, your
lender will force you to obtain a "lender's title insurance
policy" based on loan amount but you will not be forced to
obtain an "owner's policy". Most of the time, your loan
amount is very close to your purchase price so if you must
obtain a "lender's policy" it would be very silly not to
spend the extra hundred or so dollars to go ahead and
purchase the title insurance policy for the entire purchase
price. For example: If your Society Hill condominium
purchase price is $500,000 and your loan amount is
$470,000, you would be forced by your lender to pay
approximately $2710 for title insurance that only protects
your mortgage company, not you. If you decided to obtain
an owner's policy for $2860, both you and your lender would
be issued an all-inclusive policy that would cover you
and/or the lender in the event that a problem came up on
your title. That is the best $150 you can spend, in my
opinion!
Now you may be thinking, "What exactly is this insurance
policy covering?" Let me give you a few scenarios I have
encountered while working with a title company:
Perhaps you are purchasing a brand new construction condo
in Old City. Well, perhaps the builder obtained a $2
Million mortgage to rehab the building. If you purchase
title insurance, your title company will force the builder
to pay a substantial amount of the mortgage which will then
force the bank to give your title company an original
"Partial Release of Mortgage" to file a on your unit with
the City of Philadelphia Recorder of Deeds. What this
means, is say Unit 302 (your unit) will be released from
any and all responsibility for the balance of that
mortgage. If for some reason, this does not occur and the
builder never pays his mortgage in full, when to sell your
unit in 5 or 10 years, an unsatisfied $2 Million mortgage
will show up on the new title report and you will not be
able to sell your unit until that mortgage is released with
the City of Philadelphia Recorder of Deeds.
Let's say that same newly constructed Old City loft
produces a clean title at closing. No liens, no judgments,
all taxes are paid. Well, not that you see the clean
report, you decide only to pay for the lender's policy and
save yourself $200. The report was clean so there is no
reason to pay extra for nothing right?.....wrong. Let's
say the sub-contractor still hasn't gotten paid for work he
completed in your unit 3 months before you bought the
place. Guess what? If you didn't purchase an owner's
title insurance policy, the sub-contractor can place a lien
against your specific unit and guess who will be legally
responsible for that lien. And if you don't pay it, you
will also be responsible for the interest and penalties and
court costs and you may be required to show up for a small
claims hearing. Your credit may even be affected. The
only way at that point to try and get your money back would
be for you to file a lien against the builder you purchased
from-that is, if you can find him at that point.
Another scary situation most people do not think about is
the fact that the person you are buying from may not be the
rightful owner of the loft or condominium you are
purchasing. Perhaps, the owner passed away and left the
home to his or her heirs in a will. In that case, the
title company would review the will and make sure the will
was filed correctly and be sure that every individual that
may be entitled to a percentage of the home signs the deed
and has their original signature notarized. Not to mention
that any and all inheritance tax that may be due and
payable is accounted for, collected, and paid. Unpaid
inheritance tax is something that could come up as a lien
or judgment against your Society Hill condo years down the
line and with no title insurance, you would be held
responsible to pay it as the owner of record. Not to
mention the fear of a long lost son or daughter of the
previous owner that you may not have known about coming
along and claiming to have rights to a percentage of
ownership of your home.
Powers of attorney can get pretty tricky too. Again, I
think the best bet when dealing with a seller that wants to
use a power of attorney, is to get a title insurance
company to insure the transaction. The thing here is that
if "Jane" has power of attorney for the actual owner of the
property being sold, "John", you want to be sure that
everything here is in order. I once encountered a
situation where the actual homeowner, John had passed away.
His passing actually made Jane's Power of Attorney null
and void. Jane went ahead and sold his property here in
Center City Philadelphia anyway. She signed over the deed
to an innocent buyer and the documents were recorded with
the City of Philadelphia Recorder of Deeds. The buyer
moved in and got himself settled and bought new furniture
only to check the mail a few months later and find a letter
from an attorney representing John's wife (not Jane, Nancy)
asking him to get out of her house or pay her for it.
Since she was John's sole heir, the house was hers and Jane
did not have any right to sell it. Because the buyer was
smart enough to have purchased title insurance, his title
company was able to negotiate a deal with Nancy and her
attorney and pay her a lump sum to rightfully sign over the
house to the innocent buyer. I wonder what would have
happened to him had he not purchased that title insurance
policy? Hopefully, you'll never have to know.
In conclusion, I'd just like to say that as a buyer, the
title company works for you. Do not allow any seller or
mortgage company bully you into using the title company
they have a relationship with. No matter which title
company you choose, you should receive the same insurance
policy and that policy should cost exactly the same. You
may want to shop around and look for a title company with
no closing fee like Trident Land Transfer Company. You may
want to see some references as well or maybe take a look at
the company's history and find out which is their
underwriter. Whichever company you decide to use, I urge
you to go ahead and protect one of your biggest investments
and purchase that title insurance policy. Remember, you
wouldn't buy a home with a bad foundation, so please don't
buy a Philadelphia Condominium or any other home with an
"unstable" title.
----------------------------------------------------
Mark Wade has been selling Philadelphia Condos and Lofts
for 19 years and is a Realtor with Prudential Fox and Roach
Realtors in Society Hill.
http://www.CenterCity.com . If you would like additional
information about title insurance or any other settlement
related topic, free to give him a call at 215-521-1523 or
send him an email at Mark@CenterCity.com
