Why does anyone need to buy Owner's Title insurance for a home?

For the most part, I think many insurances are “scams.” But, that being said, to answer your question, the insurance would cover any claims that may have been missed or may arise after the other parties abstracted the deed. I guess it is a backup plan.

@bkcunningham Thank you for the quick reply. I love this place.
You wrote “any claims that may have been missed or may arise after the other parties abstracted the deed.”
Do you mean something like a lien or claim that is put on the property between the time the office does the title search and they make up a deed? Does that ever happen? Do unscrupulous people ever do that? Do they ever live to do it more than once?
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This seems like an awfully expensive backup plan. If the attorney’s office is well established and competent why do I need to worry about the title? Isn’t that why I am paying them?
The seller is well established too.
It bugs me to give well over $1000 to an insurance company for absolutely no reason.
I don’t know anyone who has put in a claim and collected. Anyone?

I forgot to mention I am in New York State.

It’s a damn good question, I think. However, even assuming complete competence and dedication to duty on the part of the attorney and the original title search team / organization, it would seem to me that a problem with the title could surface at some point after their title search turned up no problems. I’ve also never heard of it happening, other than possible allusions to it at one time or another when I was a child and not paying attention to this stuff. But if the problem doesn’t show up until after the close, and if you can’t prove malfeasance, dereliction of duty or incompetence on the title searchers (and I would imagine that the time, trouble and expense to simply investigate that would be high), then it’s all on you, isn’t it? Sure, you could sue whoever had withheld material information, lied or destroyed evidence (all of that being difficult to prove: how do you prove “missing evidence”?), but that person may already be bankrupt.

I can even imagine instances where things like this might happen. Your title search is done prior to the closing, and between the completion of a successful and satisfactory title search and the close, what if the seller gets foreclosed upon? Or there was a lien placed against the property that hadn’t yet been recorded at the time of the search?

In a sort-of-related incident from my own childhood (I was ten at the time, so the details, which were never made explicit to me, are now even hazier), we were about to buy a new home. In fact, I’m sure that we had made an offer and it had been accepted. We were buying the home in a relatively new development, from the builder.

But it was winter time in New England, and we didn’t know at the time how close to bankruptcy the builder was. Since he had a buyer and figured he could “skate” until closing, he allowed the fuel oil to run out… in December. By the time my parents made their final walk-through (prior to close, I’m sure), my father discovered that the house – and all of the plumbing – was frozen. (I believe that we had even moved some furniture into the house, since Dad did all of our moving, and the house was only about 10–15 miles from our then-current house.) By that time, the thaw and disaster had begun, and I think my folks actually needed a lawyer to extricate themselves from the purchase commitment at that point.

How many times do people have to pay to have paralegals search back to 1800’s? Frankly, I doubt someone goes back that far every time. This is old property, and the seller is reputable and will still live in the area. I know where he lives.

The more I think about it, the more I feel I would be throwing money away by getting that insurance. I will not mention the decision to anyone. If something happens by fraud, or malfeasance, or dereliction of duty, I guarantee they will find this to be the most expensive piece of property they ever stole.

I will reconsider if I get a strong response from someone here.
I trust all of you more than I do a lawyer selling insurance.

You’re making me think here: If the insurance is as useless as you seem to believe it is – and you may very well be right – then it would seem to be a perfect investment to find out who sells that insurance and buy some of that company. Now that you’ve raised the question, you’ve got me mighty curious as to how often it’s claimed upon.

@CWOTUS Good points. I really think this is a CYA for the attorney and the title search company. If they make a mistake, They do not have to worry about it. The buyer will figure “No big deal. The insurance company will take care of it.” That is not how i work. That is their job an they are getting paid a substantial sum to do it correctly. The seller is signing that there are no liens. If there are, I will consider that fraud. and will do everything I can to make his life miserable.

Based up my purely theoretical estimates I figure the chances of a problem are extremely remote. Why? The insurance company charges 1% of purchase price which is how much they will pay out if the property is lost. If they system was fair, that means we can figure they have one house in 100 that they will have to make a payout. But we know this is not Utopia and the CEO needs to buy gasoline for his yacht and jet fuel has gone up and his daughter was just accepted at Vassar. That means the odds are not 1:100 but are more likely 1:300 or 1:500. Those odds would include high risk properties – houses that are foreclosed, or the owners are bankrupt, or the builders are bankrupt etc. I figure the chances of a problem are near zero.
That money will be better spent if it stays in my pocket. Looks like poor Chelsea will have to go to a State school.

I found some real numbers and see that my estimate were way off. I figured they paid out 33% to 20%. My estimate was way off. they only pay out 4 to 5%!!! 1 claim in 2500 !

According to this article published by CNN money:

“The profits involved appear significant. Nationwide, only a tiny percentage of premiums are returned to consumers to settle claims.
In 2003, according to ALTA, the industry paid out about $662 million. That’s just over 4 percent of the $15.7 billion taken in as premiums. Auto insurers, in contrast, paid out 75 percent of collected premiums, according to the American Insurance Association (AIA).
.....
Birnbaum says insurers exaggerate the work involved in researching and cleaning up titles. Most records are now automated. “A small portion of the premium dollar is spent on doing the title search,” he says. “You tap a few keys, look at the screen, get a printout and you’re done.” Birnbaum claims that 30 percent to 50 percent of each premium dollar goes to selling and marketing its products.”

Done!

The house we sold 6 years ago, had Title Insurance and luckily we did. Our buyers found that the original owners from 1967 had a falsified the signature on the Bill of Sale, when the property was sub-divided. There was seven other houses as part of the neighborhood, hope they had Title Insurance. (The Bill of Sale had the son’s signature and not the mother, she was a widow of the farmer that farmed the land.) It took forty years but I’m lucky I had the insurance.

@Tropical_Willie Interesting. Did they actually pay out anything? Was anyone coming after you for falsifying any documents? I’m guessing the answer is No. They probably paid some clerk to fix the signature.
I just went to the County Clerk’s website and looked at the deeds and mortgage releases for the previous 5 owners. It took me all of 5 minutes.

Don’t know how it ended but were able to close on the sale. IF we didn’t have insurance I don’t know where we would be, but the closing happened and we were happy (wife and myself). The signature at the subdivision was the son signing for the mother. We were the fourth owner.
I have a friend that had a piece of land with Title Insurance, he found out when selling it, the deed from the 1880’s was not valid and he was the seventh owner.

Let’s think about this for a minute. It is likely everyone down the line from the 1967 sale and the 1880’s sale paid an attorney for a title search. Either every one of the examiners was incompetent or it really didn’t make a bit of difference. Meanwhile the title insurance was collecting 1% of every sale and paying out nothing. They certainly didn’t correct anything. Why should they? They will collect another 1% from the next person down the line.
It would be interesting to see how the signatures and deeds were straightened out. My guess? They didn’t do a damn thing except take the money to the bank.
I am learning a lot here.

Interesting little read.

@bkcunningham Thank you. Your article above, “Huge Title Insurance Scam Exposed”, in Realty Times was more of what I found in my limited research. They said “If you pay $1,000 for title insurance then as much as $880 goes to the nice person who provides the policy and just $120 is necessary to actually provide insurance coverage.” Since the fee here is 1% that means we can estimate the odds are 1 in 12000 there will be a problem and that includes all the high risk properties. .