Title Insurance

How much title insurance do you need? The answer is…..”the minimum you can get away with”. (within reason)

These matters are best explained through examples. Let’s say you own land which you paid $100,000.00 for. The cost the construct will be $500,000.00. The finished value of the home will be $800,000.00. If you are to finance $500,000.00 (all of the construction costs), how much title insurance do you need? I have asked this question many times of escrow officers all over Texas and to a person they tell me, ”800,000.00”. Why? The first reason that typically is presented is that if there is a problem with the line of title, the homeowner needs to be insured for the full value of the property or they risk losing their property. Is that realistic? I have on occasion actually been told that: “it is Texas State Insurance compliance Law”. It is not.

The bottom line is, Title insurance companies would like to sell you as much title insurance as they possibly can. The difference between 500 and 800 thousand dollars in coverage means thousands of dollars in premium. That represents straight cash to them. Have you ever known anyone who has filed a title insurance claim? I do. I know one person. In two decades in this business, I had never known anyone who filed a title insurance claim until I had to do it. And when I did….My real estate agent did not know how to do it. Heck….the closing officer at the title insurance company where I closed the transaction in question, did not know how to file a title insurance claim and had never heard of anyone doing so. What does that tell you?

Assume for a minute that you have a title insurance claim on your $800,000.00 home. Are you truly concerned that maybe you bought 500k in title insurance verses 800k? What type of claim would it be? Would it be an easement issue (as was mine) or a foundation setback problem? I actually sat down with an attorney and brainstormed as to what type of claim would require “full value title insurance coverage”. The only thing he could come up with was: “a clean break in the chain of title in which it was deemed by the courts that you have no actual ownership in the property”. How remote is that? Set aside that possibility. Is it realistic that the title company is going to cut you a check for half a million dollars rather than hiring a bunch of attorneys on your behalf to fight the case and cover your rights?

To return to our example: The lender is going to require $500,000.00 in coverage. This is plenty. Get it and sleep well at night knowing that if there is ever any issue with your title, you have (after calling me and finding out how to actually file a claim) a “war chest” of half a million dollars to pay attorneys to protect your rights and settle the case.