Title Insurance... Is it required?

[LouisianaDisneyFan]

Hi all,
I'm wondering if Title Insurance is required for a cash sale of DVC in Florida (a resale contract). I know for home purchases, Title Insurance is generally required by the mortgage company, but as no financing will be involved in this transaction, I don't particularly see a need to spend the extra money. A title search and abstract have already been completed by the Title Company... so why would Title Insurance be needed? Any opinions/insight would be appreciated. Thanks!

 

[lilpooh108]

Hi all,
I'm wondering if Title Insurance is required for a cash sale of DVC in Florida (a resale contract). I know for home purchases, Title Insurance is generally required by the mortgage company, but as no financing will be involved in this transaction, I don't particularly see a need to spend the extra money. A title search and abstract have already been completed by the Title Company... so why would Title Insurance be needed? Any opinions/insight would be appreciated. Thanks!

Hmm I don't think it is ever "required." It is an option for you to protect yourself. Your title company completes a title search, but it is not guaranteed. If the seller had a creditor that somehow recorded an interest on all of his property (i.e., judgment lien) and somehow the title search misses it, the lien may still be on the property even after you purchase it (assuming it doesn't come off during escrow). You would buy title insurance for the title company to "guarantee" that nothing is on title except what it says in the title report. If you buy title insurance and something later comes up (i.e., a prior lien that was missed), the title company will pay the costs to resolve the issue. Of course it's more complicated than that, but that is the gist of it.

 

[Dean]

Not only is it not required, IMO it's not especially needed. With minimal effort one can do enough research to get as much protection as needed without title insurance.

 

[LouisianaDisneyFan]

I didn't think it was required either. But, when I told our closing agent that I thought it was unnecessary, she wrote back that Florida law stipulates that Licensed Title Agents are not allowed to prepare closings without title insurance. Has anybody else ever heard that this is an actual "requirement" of Florida law? I know this is not the case in Louisiana. Has anybody closed on their DVC without the insurance?

 

[Dean]

I didn't think it was required either. But, when I told our closing agent that I thought it was unnecessary, she wrote back that Florida law stipulates that Licensed Title Agents are not allowed to prepare closings without title insurance. Has anybody else ever heard that this is an actual "requirement" of Florida law? I know this is not the case in Louisiana. Has anybody closed on their DVC without the insurance?

That would be news to me and I know of several companies that have done so without title insurance. Sounds like a sales gimmick to me.

 

[sweetdana]

In mortgages, for a collateralized loan it is required. .. For a titlte company it is where they make their profit. In the end, you are protected forever with it. In the event a real estate should have been split between spouses, or split between kids with a parents death, and the courts didn't know about another party. You do not lose your property but the title company pays the rightful owner off.

... How devistated would you be to find out in 5 years, that the seller, had a sister who didn't speak to anyone in the family didn't know her mom died and came back to say 1/2 that property was mine, and he didn't have the right to sell it ..so the sale is invalid... but the loan you took isn't. .. It isn't buckets of $$ and it is piece of mind.

 

[Dean]

In mortgages, for a collateralized loan it is required. .. For a titlte company it is where they make their profit. In the end, you are protected forever with it. In the event a real estate should have been split between spouses, or split between kids with a parents death, and the courts didn't know about another party. You do not lose your property but the title company pays the rightful owner off.

... How devistated would you be to find out in 5 years, that the seller, had a sister who didn't speak to anyone in the family didn't know her mom died and came back to say 1/2 that property was mine, and he didn't have the right to sell it ..so the sale is invalid... but the loan you took isn't. .. It isn't buckets of $$ and it is piece of mind.

To expand on my statement earlier that it's not especially needed, IMO, it's not needed at all in most situations with DVC. One can evaluate for ownership, lien's and status with DVC. The main issue one cannot truly evaluate completely is going to be bankruptcy where one's trying to sell on their own when they shouldn't. To me it's exactly like paying for the extra insurance on a rental car.

 

[Lawshark]

To expand on my statement earlier that it's not especially needed, IMO, it's not needed at all in most situations with DVC. One can evaluate for ownership, lien's and status with DVC. The main issue one cannot truly evaluate completely is going to be bankruptcy where one's trying to sell on their own when they shouldn't. To me it's exactly like paying for the extra insurance on a rental car.

I actually own a title company here in Maine...and have been practicing law for 15 years...and even when I don't have a financial interest in someone getting an owner's policy of title insurance I would always strongly recommend that they buy it.

Your expansion makes a little more sense (in regard to DVC)...but I still disagree. A properly done title search will show that there are no concerns of record during the period of the search...that is not what title insurance is for. If my abstractor screws up and misses a lien that is of record...the buyer is going to be covered regardless of whether they have an owner's policy of title insurance...my E&O insurance is going to be paying out a claim.

Title insurance is for problems that are not shown in the public record...things that simply will not show up during a proper search and therefore the title company has no liability...you will be simply SOL as a buyer. Examples would be forged documents in the chain of title (which does occur...especially in regard to distressed properties), if the property went through probate and an heir was improperly notified they could potentially make a claim against the property, mechanic's liens, etc.

If someone comes forward to say that your title is different than as stated in the policy...it pays any damages you suffer and, more importantly, your legal fees during any fight.

Granted...these events are not statistically likely to occur...the claim rate is about 7%...so you have a 93% chance that you will never use it. But...if you are in that 7% then it pays off big time.

It's a one time fee...and covers you forever.

 

[Dean]

I actually own a title company here in Maine...and have been practicing law for 15 years...and even when I don't have a financial interest in someone getting an owner's policy of title insurance I would always strongly recommend that they buy it.

Your expansion makes a little more sense (in regard to DVC)...but I still disagree. A properly done title search will show that there are no concerns of record during the period of the search...that is not what title insurance is for. If my abstractor screws up and misses a lien that is of record...the buyer is going to be covered regardless of whether they have an owner's policy of title insurance...my E&O insurance is going to be paying out a claim.

Title insurance is for problems that are not shown in the public record...things that simply will not show up during a proper search and therefore the title company has no liability...you will be simply SOL as a buyer. Examples would be forged documents in the chain of title (which does occur...especially in regard to distressed properties), if the property went through probate and an heir was improperly notified they could potentially make a claim against the property, mechanic's liens, etc.

If someone comes forward to say that your title is different than as stated in the policy...it pays any damages you suffer and, more importantly, your legal fees during any fight.

Granted...these events are not statistically likely to occur...the claim rate is about 7%...so you have a 93% chance that you will never use it. But...if you are in that 7% then it pays off big time.

It's a one time fee...and covers you forever.

But wouldn't you agree that MOST of those risks are not applicable to DVC and that even the ones that are would be far less likely to occur with DVC than with most real estate options? I would agree that if one's research raises questions such as an estate sale or noted bankruptcy, that would alter the landscape, but that's why you do the due diligence. And for a larger package it would be more reasonable than a smaller one. There are less variables with DVC than other real estate issues and even most timeshares that can not be easily investigated up front.

Let me ask you what would happen with a timeshare that had title insurance and the company were no longer in business if there were a major issue. Assume the company is gone and there are no successors to go to.

 

[toniosmom]

In my opinion, the cost is minimal for a lifetime benefit. Better safe than sorry.

 

[Dean]

Here are a few thread's on TUG related to Title insurance.

http://www.tugbbs.com/forums/showthread.php?t=1696
http://www.tugbbs.com/forums/showthread.php?t=120066
http://www.tugbbs.com/forums/showthread.php?t=117704
http://www.tugbbs.com/forums/showthread.php?t=110459
http://www.tugbbs.com/forums/showthread.php?t=58356

 

[LouisianaDisneyFan]

The thing is... the closing agent told me it's required by law that I get the insurance in Florida. Is that truly the case, or is there an opt-out clause in the law? From the information I have so far, I am purchasing the DVC from the original owners of the points, who purchased directly from Disney. All financials have been confirmed by Disney after ROFR. I feel confident there will not be title problems. Has anybody purchased their DVC without the insurance? If so, who was your closing agent?

 

[Dean]

The thing is... the closing agent told me it's required by law that I get the insurance in Florida. Is that truly the case, or is there an opt-out clause in the law? From the information I have so far, I am purchasing the DVC from the original owners of the points, who purchased directly from Disney. All financials have been confirmed by Disney after ROFR. I feel confident there will not be title problems. Has anybody purchased their DVC without the insurance? If so, who was your closing agent?

I have both bought and sold without title insurance. I think the closing agent is trying to pad their income as, like extended warranties, there is a VERY high markup.

 

[JimC]

Title insurance will likely be required if you are financing the purchase. Sellers could care less as title insurance policies come in two flavors -- a buyer (owner) policy or a lender policy. Florida title insurance is governed by the Department of Financial Services and the Office of Insurance Regulation. Suggest you ask them your question.

 

[LouisianaDisneyFan]

Title insurance will likely be required if you are financing the purchase. Sellers could care less as title insurance policies come in two flavors -- a buyer (owner) policy or a lender policy. Florida title insurance is governed by the Department of Financial Services and the Office of Insurance Regulation. Suggest you ask them your question.

Okay, I'll check with them. This is a cash sale... there is no mortgage involved.

 

[Lawshark]

But wouldn't you agree that MOST of those risks are not applicable to DVC and that even the ones that are would be far less likely to occur with DVC than with most real estate options? I would agree that if one's research raises questions such as an estate sale or noted bankruptcy, that would alter the landscape, but that's why you do the due diligence. And for a larger package it would be more reasonable than a smaller one. There are less variables with DVC than other real estate issues and even most timeshares that can not be easily investigated up front.

Let me ask you what would happen with a timeshare that had title insurance and the company were no longer in business if there were a major issue. Assume the company is gone and there are no successors to go to.

Agreed to a large degree...DVC is a special animal and most of the issues that could occur are minimized to a huge degree because while you are technically buying a real estate interest...it's a fractionalized interest that is untethered from the actual real estate almost entirely...you're buying points that are fungible at multiple properties.

Additionally...you have Disney with a direct interest in the property both on the timeshare side and the cash reservation side...with a huge incentive for them to "self-insure" and correct any issues before it impacts you. Granted...you may be looking at higher yearly dues if a problem arises...but the risk is spread quite wide and far.

However...depending on the cost in Florida...it may still be a relatively cheap peace of mind. BUT...I wouldn't think someone is crazy for foregoing it on DVC.

I DO think they are crazy for foregoing it on single family residences.

 

[Dean]

Agreed to a large degree...DVC is a special animal and most of the issues that could occur are minimized to a huge degree because while you are technically buying a real estate interest...it's a fractionalized interest that is untethered from the actual real estate almost entirely...you're buying points that are fungible at multiple properties.

Additionally...you have Disney with a direct interest in the property both on the timeshare side and the cash reservation side...with a huge incentive for them to "self-insure" and correct any issues before it impacts you. Granted...you may be looking at higher yearly dues if a problem arises...but the risk is spread quite wide and far.

However...depending on the cost in Florida...it may still be a relatively cheap peace of mind. BUT...I wouldn't think someone is crazy for foregoing it on DVC.

I DO think they are crazy for foregoing it on single family residences.

Glad to see you've come around to my way of thinking. I would suggest that is not a cheap price for many situations ($200 roughly), esp since I see it as a wasted expense for most. As Jim alluded to, a lender might require it but for DVC I doubt that's true as there is really one company that will lend right now resale that I am aware of (don't think Tammac is an option now) and I don't believe they require it. That puts me back to my original thought on this thread, that the agent is trying to pad their own pockets at the buyers expense which I don't have a problem with if done honestly but in this case that does not appear to be so.

 

[Lawshark]

Glad to see you've come around to my way of thinking. I would suggest that is not a cheap price for many situations ($200 roughly), esp since I see it as a wasted expense for most. As Jim alluded to, a lender might require it but for DVC I doubt that's true as there is really one company that will lend right now resale that I am aware of (don't think Tammac is an option now) and I don't believe they require it. That puts me back to my original thought on this thread, that the agent is trying to pad their own pockets at the buyers expense which I don't have a problem with if done honestly but in this case that does not appear to be so.

I wouldnt quite say it that way

First...if it is in the neighborhood of $200...is that really that prohibitive of a price? If it is...DVC is probably not a wise choice for your financial situation. Considering that $200 represents roughly 1 hour of legal advice...

Second, perhaps the message about what is "required" is getting garbled. I can tell you that I will not allow my company handle a cash purchase unless the buyer purchases title insurance. If they don't want title insurance, then they need to find another attorney to do their closing.

It's not for money (although it is nice to get that)...but because of liability for both me and for them. They are taking on a risk that, frankly, most people either don't understand or will say that they don't understand if a problem arises.

Here's the scenario...in a year a title issue pops up that would have been covered by title insurance...the buyer didn't get it...but says, "If only you had properly explained why I should get title insurance, then I would have done so. Now I'm out $4,000...and you should have made sure that I bought it."

Now...that scenario is the fault of other lawyers...but it's reality. I'm no fan of what a lot of my litigation bretheren "accomplish"...but I'm not going to handle a transaction with that kind of built in risk.

 

[LouisianaDisneyFan]

It wasn't the price that made me take pause about automatically paying the title insurance... it was the fact that I was told it was required by law. I guess you could call it a "principle of the thing" situation for me. After a bit more investigation, it has come to light that title insurance is not required by law, but is required by the closing company my paperwork was sent to by the realtor. The assistant handling my correspondence told me it was required by law, but later confirmed that it is an internal policy of their particular title company (still required for them to do the closing for me, but not required by LAW). There are companies that will close your DVC sale that do not require title insurance be purchased by the buyer. However, I've decided to proceed with my original closing agent, despite the requirement to purchase the insurance. I just wanted to get a straight (and honest) answer to a straight question.

Thanks for everyone's input.

 

[Dean]

I wouldnt quite say it that way

First...if it is in the neighborhood of $200...is that really that prohibitive of a price? If it is...DVC is probably not a wise choice for your financial situation. Considering that $200 represents roughly 1 hour of legal advice...

Second, perhaps the message about what is "required" is getting garbled. I can tell you that I will not allow my company handle a cash purchase unless the buyer purchases title insurance. If they don't want title insurance, then they need to find another attorney to do their closing.

It's not for money (although it is nice to get that)...but because of liability for both me and for them. They are taking on a risk that, frankly, most people either don't understand or will say that they don't understand if a problem arises.

Here's the scenario...in a year a title issue pops up that would have been covered by title insurance...the buyer didn't get it...but says, "If only you had properly explained why I should get title insurance, then I would have done so. Now I'm out $4,000...and you should have made sure that I bought it."

Now...that scenario is the fault of other lawyers...but it's reality. I'm no fan of what a lot of my litigation bretheren "accomplish"...but I'm not going to handle a transaction with that kind of built in risk.

You basically agreed with every point that I made as to why it's not necessarily needed in most situations. It's not the cost but the value that concerns me. IMO many people spend money on things that gives them little value. IMO $200 is an issue if it doesn't provide value and for almost all situations with DVC, it doesn't. The fact it's only $200 is really irrelevant and certainly not a good reason to spend the money. I know people are in the habit of buying it because they do for other real estate. The fact is it gives little value to most timeshares and that's even more so for DVC. However one has to be willing to do a modest amount of investigation on your own.

I don't think you addressed the situation of what would happen if the title company went out of business, a larger likelihood than one being able to successfully use the title insurance related to DVC. Basically it's false security for a price.