A few days ago I received a phone call from a potential client who was buying a property for cash. These are my favorite kinds of transactions because you don’t have the additional complications that a bank brings to a closing. But the reason for his phone call was to express his frustrations with title insurance.
One of his first statements was “I don’t need title insurance, because the title company issued a title commitment saying that they would insure the property, and I don’t want to pay for it.” We discussed purchase price, which was well over $300,000 and the one time cost of a title policy, which was $1,800. His main complaint was that he did not know that his real estate agent would direct him to a title company and that the title company could only close the transaction if they issued title insurance. He also knew that an attorney could close a transaction without title insurance.
His rationale for not paying for the title insurance was that it was an easy transaction and he only needed an attorney to disburse funds. I explained to him that this was not a simple matter, that documents needed to be prepared and closing had to be conducted. Additionally, I explained that he would be foolish not to purchase a title policy and that most attorneys would not close a transaction without it. We also discussed liability and I told him my view – any attorney who closes the transaction without title is taking on a huge liability, and unless that attorney is fairly compensated for the liability he was not going to find a reputable attorney to close the transaction.
As expected, I was not hired to close the transaction. But hopefully, the buyer is now a little better informed about the closing process and why he should want title insurance.