First off, the way I see title insurance explained, it sounds like something I would be interested in. However, reading the ‘fine print’ on the policy I am being offered (which after some digging looks like very standard language) basically suggests all possible realistic issues are exempt from the policy. My commitment states the following are exempt: Any rights, interests, or claims of parties in possession not shown by the public records. Any lien, or right to a lien, for services, labor, materials, or equipment in connection with improvements, repairs, or renovations provided before, on, or after Date of Policy and not shown by the Public Records at Date of Policy. Any encroachment, encumbrance, violation, conflict in boundary line(s), shortage in area, or adverse circumstance affecting the title that would be disclosed by an accurate and complete land survey and/or physical inspection of the land. The term ‘encroachment’ includes encroachments of existing improvements located on the land onto adjoining land, and encroachments on the land of existing improvements located on adjoining land. Taxes or special assessments assessed, but not shown as a lien in the Public Records, at Date of Policy. Easements or claims of easements not shown by the public records. Any adverse ownership claim by right of sovereignty to any portion of the lands insured hereunder, including tidelands, submerged, filled, and artificially exposed lands and lands accreted to such lands or dispute as to the boundaries purportedly caused by a change in the location of any water body within or adjacent to the land. Subject to any line rights of way including electric line, telephone line, cable line, water and sewer line rights of way in use and existing in, on, or under the ground and all rights in relation thereto. What I don’t understand is, what the hell does this cover if everything not in the public record, which is clean, is not covered?? Especially the first, third, and fourth bullets seem like they kill everything of value outside of literally the title company just messed up and the public record was not clean. Everyone talks about ‘undisclosed heirs coming out of the woodwork and claiming the property was illegally transferred’, or fraud, etc… But clearly these policies DO NOT protect against that… It only covers stuff already in the public record… Also, I don’t know where people are getting ‘it’s a few hundred dollars’. The policy I’m being offered is nearly 1% of the purchase price. I’ve seen quite a few threads here which suggest Title Insurance is worth it, so please point out where I’m wrong here, because to me this feels like a total scam.
Well, there are cases where the issues are not exceptions. One of my first deals ever: Young couple bought a house that was being sold by an owner-agent who purchased it from the heir of a man who had died sometime earlier. The title company said, ‘Yes, we should have discovered this during our title search. We will pay to hook it up to the sewer system.’
Title insurance guarantees the title is clean when you buy. If later there is a dispute on the sale by a previous owner you are covered.
Just because it’s public record doesn’t mean it’s clear that the lien does or doesn’t exist. A county and local record search should be straightforward but weird scenarios happen. The title insurance would cover you here.
Title insurance makes your title marketable.
I’ve often wondered the same thing. They use everything as an exception.
If you are working with sophisticated parties a lot of the exceptions you listed can come off the policy with the giving of a seller’s affidavit and certain due diligence.
How does anyone know that me and you made a deal last week for cash if we didn’t record it? What would happen if one of us sold it to someone else after receiving the other person’s cash?
If the claim isn’t in the public record before you take ownership you are almost never liable. ‘Undisclosed’ heirs claiming they are owners are covered; title insurance will pay to defend a lawsuit.