When it comes to closings, title insurance may seem like an unnecessary or extra cost that can be avoided with little consequence. That could not be further from the truth. Title insurance is the ultimate form of long-term protection when it comes to one of the largest financial decisions of many people’s lives. So, what is title insurance, how much will it cost, and what are the consequences if a buyer decides not to purchase a policy? Let’s dive in.

Purpose of Title Insurance:

Most people are familiar with homeowners’ insurance, hurricane insurance and flood insurance. These types of policies protect the home moving forward from unforeseen or unexpected damage. The homeowner typically pays a monthly or annual policy premium, which gets renewed every year of the duration of ownership. Title insurance, on the other hand, is a one- time purchase based on the sale price of the property and provides protection against errors or defects to the title caused by the previous property owners. This one-time policy purchase provides protection for the duration of ownership of the insured property and does not require additional payments or policy renewals.

The most common title insurance claims include:

1. Closing errors: incorrect legal descriptions, signature errors, failure to pay taxes/assessments or liens, incomplete or improper payoff of mortgages, judgements or lines of credit.
2. Searching errors: missed deeds, tax liens or judgements, breaks in chain of title, reappearance of unknown heirs or probate defects, missed prior mortgages, and title examining or abstracting errors.
3. Boundary and survey issue: errors or misrepresentations as a result of a property survey or recorded mapping/platting instrument.
4. Easement and Access issues: errors or misrepresentations as a result of an easement or recorded mapping/platting instrument, lack of ingress/egress to subject property.
5. Recording problems: failure to record deeds, mortgages, or other
6. Fraud and forgery: deed forgery, identity theft, wire
7. Mechanics liens: invalid or unresolved mechanics liens resulting from previous

While working with a knowledgeable closing agent, such as a seasoned Real Estate Attorney, can help identify, resolve and avoid these issues, the best way homeowners can protect themselves is by investing in a title insurance policy at the time of closing.

Cost of Title Insurance:

Title insurance rates are set by the State of Florida and can be issued as an initial policy or a reissue policy. If a property is being sold within 3 years of purchase, and the sellers have a preexisting policy, title insurance companies will offer a discount to the new buyers, by providing a reissue rate re-calculation. If the home is being sold after 3 years, or the previous owners never invested in a title insurance policy, the new rates apply. Rate calculations are based on the amount of liability written, often the purchase price or mortgage amount, correlating to a varying fee per thousand dollars. The rate calculations are as follows:

New Policy

Below is a sample calculation for a new title insurance policy with a coverage amount of

$350,000.

Example with coverage amount of $350,000

Importance of title insurance:

As mentioned, title insurance was designed to protect current property owners from the mistakes of those who came before them. While title and lien searches are important tools, these searches may contain errors, or the person reviewing the searches may not catch or fully resolve an existing error. The following scenario is a very common example of how title insurance can save a homeowner money and headaches:

After speaking with their attorney, Mr. & Mrs. Smith decided to put their property in a trust, named The Smith Family Trust. In 2005, the Smiths decided to sell their home and move out of state, to be closer to their adult children. At the time of closing, the title company handling the transaction had them signed the Warranty Deed using their normal signatures, as Melvin and June Smith. It is vital to note that the conveyance from Mr. and Mrs. Smith to the new owners in 2005 was incomplete, as the Smiths did not sign the deed as Trustees of The Smith Family Trust; a crucial step for a Trust to convey ownership. The property was then sold to new owners in 2007, 2013 and 2020. It was not until the 2020 closing that the new Buyers decided to use a knowledge real estate attorney for their closing. While reviewing the title search, the attorney noticed the incomplete transfer that had been missed during the three previous closings, and notified the Sellers, Buyers and Realtors. Confused by what this meant, the attorney explained that since the Smiths signed as individuals rather than as individuals and in their capacity as Trustees, the Smith Family Trust retained its interest in the property for all these years!

In this situation, the best-case scenario is that the current owners or the closing agent handling the closing would be able to track down Mr. and Mrs. Smith and have them execute a new deed signing in their capacity as Trustees of The Smith Family Trust. If Mr. and Mrs. Smith are unwilling to cooperate in signing a new deed and the current property owners do not have a title insurance policy, they would have to consider legal remedies such as a Quiet Title Action and would have to cover expenses out of their pockets. A Quiet Title Action essentially asks the courts to review ownership rights and “bless” the property’s clear title, erasing the existing title issue. Quiet Title Actions not only take time to complete, but can easily cost $10,000 or more, assuming the previous owners are cooperative. If a dispute arises after starting the Quiet Title Action, costs can quickly climb over $25,000. If the current owners invested in a title insurance policy at the time of purchasing their home, then they could file a title insurance claim and the issuing insurance agency would cover costs and help resolve the issue at their expense.

When it comes to closings, title insurance may seem unnecessary, but that could not be further from the truth. Title insurance is the ultimate form of long-term protection when it comes to one of the largest financial investments. Whether you are purchasing a new property or have decided to purchase a title insurance policy after closing, contact the attorneys at Lacey Lyons Rezanka to discuss how we can help you obtain a policy and achieve the highest level of protection as a homeowner.