Ask A Lawyer: What Is Title Insurance?
As previously discussed in the previous Real Property Reports post, Title Insurance is a substitute for a Real Property Report (RPR) and Compliance. The Seller of a House is obligated to provide an RPR and Compliance in the standard Real Estate Purchase Contract.
But, if the Buyer agrees, the Seller can cross out that clause and provide Title Insurance instead.
A Real Property Report shows the structures on a property and Compliance is the City approving the location of those structures. Title Insurance is an insurance policy the Buyer will purchase (with money provided by the Seller) that, in theory, says “we don’t know if the structures are in the correct location. If they are not, this insurance policy will cover the cost of bringing them into compliance with the City’s requirements”.
Title Insurance is advantageous for the Seller because it is inexpensive and easy to obtain. But what about the Buyer?
What I tell clients is this:
A title insurance policy is an insurance policy. Do you want to know if something is wrong with the House you are buying? Or do you want to trust that an insurance company will cover you if there is something wrong?
Maybe my perspective is jaded from litigation files for clients who were improperly denied coverage, but I would rather know exactly what I am getting into than trust an insurance company to look out for me.
If you do not make any changes to the property, you’ll likely also be able to use that sale RPR and Compliance when you sell.
That said, there are exceptions. For example, if you plan on making changes to the property after purchasing (i.e. building a new deck or garage), then the RPR you will receive will become obsolete and Title Insurance may be a good option.
Every situation is different, but as your lawyer, Kaup Law Office will make sure you are informed so you can make the best decision for you.