Title Insurance Traps

Title Traps Can Bite
Foreclosure Buyers

The potential traps that lurk for Buyers procuring title work, especially for foreclosures, reminds me of a favorite attorney joke (I'm allowed to tell them because I am one, albeit non-practicing).

When a neighbor charges that the attorney's dog bit him, the attorney first denies it. When he's shown photos of the bite and the emergency room bill for the neighbor's stitches, the attorney then argues that the dog attacked in self-defense. When numerous witnesses come forward to testify that the attack was unprovoked, the attorney says . . . it's not his dog.

Similarly, Buyers paying good money for title exam and insurance need to be mindful of numerous pitfalls, especially when foreclosures are involved. Herewith is a partial list:

--Who is the title company working for? If they're hired by the bank that owns and is selling the property -- as some banks require -- their motivation to uncover all potential liens and claims against the property may be compromised.

--What's in the fine print of the owner's title insurance policy? Specifically, what's included -- and more importantly, what's excluded? Many municipalities are now imposing hefty abandoned building fees (Minneapolis' is $6,000). Is the title examiner checking to see if such a fee has been imposed? How recently did they look? Ditto for property taxes, unpaid utility bills, contractor liens, etc.

--Even if the owner's title policy covers a potential claim, it may be subject to a significant deductible. Or, to collect, the owner may have to incur significant legal fees that the title policy won't reimburse.

--Is the company issuing the owner's title policy financially sound? Even an airtight claim is worthless if the company standing behind the policy is bankrupt or otherwise out of business.

When it comes to title work, inattentiveness or unwise penny-pinching can cost Buyers A LOT down the road.