Joined: 28 Feb 2007
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 Posted: Tue Sep 20, 2011 7:32 pm?? ?Post subject: Title Insurance on the land and new construction.... |  |
| Situation:
At time of lot purchase, title insurance was also purchased. Within a year, new home was constructed. (no mortgage on either lot or improvement) Question: Is title insurance on the improvement needed. 1210 | |
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| Posted: Tue Sep 20, 2011 7:59 pm?? ?Post subject: | |
| Thanks Allen.
Yes, that's what happened. When faced with the decision on title insurance on the improvement, I couldn't come up with a reason to purchase it. I'm just posting this to see if anyone at all can see a reason why I should have purchased title insurance on the improvement. The fact that you are a custom homebuilder carries a lot of weight. Thnaks again
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| Posted: Tue Sep 20, 2011 8:26 pm?? ?Post subject: | |
| Hi Frugal,
I have signed "Subcontractor's Lien Waiver Affidavit"'s from all subs and one from the general contractor. 1210 | |
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| Posted: Tue Sep 20, 2011 8:43 pm?? ?Post subject: | | ||
I'm not sure that's the same but it may be by a different name as these laws vary from state to state. The lien releases that I am referring to would be signed by the material suppliers and subs essentially saying that they have been paid in full and no longer have a right to put a lien against your property for material or labor that went into it. In our area it does not require the signature of the owner, just the material/labor supplier. | |||
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| Posted: Wed Sep 21, 2011 10:40 am?? ?Post subject: | |
| Bump......
Lawyers, would appreciate hearing from you. 1210 | |
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| Posted: Wed Sep 21, 2011 4:15 pm?? ?Post subject: | |
| I am a lawyer. I haven't practiced real estate law in a long time, but I used to work on plenty of real estate financings, and the title work was a key component of every deal.
Mechanics lien coverage is typically not provided by a basic owners title policy. Title insurers will (1) include language to say the policy does not cover any liens that attach after the policy date, and (2) if there are any existing mechanics liens, they will list them as exceptions to coverage on Schedule B. You can get a mechanics lien endorsement from most title insurers, but you will have to pay extra for it. If you produce final lien waivers from the GC and all subs, then it will be pretty cheap as an add-on. (The word "final" is key - you did not mention what kind of lien waivers you obtained.) However, the reason it would be cheap is because (1) the title company is already making $$ from the basic policy and (2) thanks to the final lien waivers, there shouldn't be any claims. Mel is correct that there is an entire universe of materialmen/suppliers and sub-subs that could file claims, but if I were you, I'd be comfortable "self-insuring" against that. Also, long story short, if a sub-sub really does have a good claim (i.e., they deserved to be paid and never were), you're probably on the hook to pay them anyway, not the title company. The mechanics lien endorsement is really meant for lenders. | |
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| Posted: Wed Sep 21, 2011 8:12 pm?? ?Post subject: | |
| Thanks NoVa
1) Here is the body of the lien waiver..... "For and in consideration of payment and receipt of $______, Affiant has and does hereby waive, relinquish and release his or its leins, claims, rights, and charges of every nature whatsoever which have arisen by virtue of any and all such labor, service and\or material having been performed and/or furnished by Affiant, including any and all mechanics'or material men's lien or liens claims afforded Affiant under the laws of the state of ______. Affiant further agrees that as of the date hereof, he or it has paid or has caused to be paid all bills, invoices, charges or other amounts due and payable which are payble by Affiant to others for labor, services and/or materials furnished to or for the benefit of Affiant for construction of the aforementioned improvements, together with all applicable local, state or federal taxes or assessments payable by Affiant and that Affiant agrees that it shall defend, indemnify, and hold harmless the General Contractor and Owner of the aforementioned tract of real property and improvements, and such tract of real property and improvements from and against all such claims for any amount not so paid by Affiant." 2) What I most want to know is .......since I have title insurance on the real property and since I am the original owner of the improvement (because I built this house) what is the purpose of getting title insurance on the improvement I am more concerned with title defects than a mechanics lien (perhaps I'm wrong on this. 3) Construction was finished in 2004, seven years ago. I have checked with the county clerk's office, and there are no liens at the present. Is the seven year time factor significant? 4) I'm just trying to erase any remorse I have in not purchasing title insurance on the improvement back in 2004. Thank you very much 1210 Hope you can help. | |
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| Posted: Wed Sep 21, 2011 8:38 pm?? ?Post subject: | | ||
I believe it comes down to how much your policy will pay out should there be a claim. The cost of title insurance is based on the value of the property at the time the policy is written. Let's say the land cost $50k. If it turns out there is a defect and and the previous owner's ex spouse actually still has an interest in the land, you will be compensated based on the property being worth $50k -- adjusted for inflation as described in your policy. If you put a $250k house on the $50k land, without a new title insurance policy, I think you are under insured. My guess is that you paid cash to have the house built. If you took out a construction loan, the bank likely would have insisted on a lender's policy. Of course, that wouldn't cover you, but that would be the natural time to purchase an owners policy. I'm definitely no expert, but I think that's how it works. Also, thanks for asking this question. I find title insurance issues confusing and hope that someone will correct me if I've explained something incorrectly. | |||
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| Posted: Thu Sep 22, 2011 2:08 am?? ?Post subject: | |
| I'm not an attorney but I've dealt with these things both personally and in business.
If I had been in your position with title insurance on the property and lien releases from subs and material suppliers I would not have purchased title insurance on the house. The fact that seven years has passed would give me added comfort as I believe there is typically a much shorter window within which liens must be filed (these laws vary by state). In addition as I stated earlier, given that you were the original owner of the home I'm not sure that title insurance would have insured you against anything anyway. Having the lien releases was your insurance and the passage of time should have closed the window on any claims that you many have missed. So relax, in my opinion you have absolutely nothing to be concerned about. (Edited for spelling) Last edited by FrugalInvestor on Thu Sep 22, 2011 11:58 am; edited 2 times in total | |
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| Posted: Thu Sep 22, 2011 7:17 am?? ?Post subject: Re: Title Insurance on the land and new construction.... | | ||
Yes. | |||
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| Posted: Thu Sep 22, 2011 7:22 am?? ?Post subject: Re: Title Insurance on the land and new construction.... | | ||||
Why does he need title insurance? | |||||
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| Posted: Thu Sep 22, 2011 10:54 am?? ?Post subject: | | ||||
I'd agree with all of this. If all you are concerned about are title defects prior to your new construction, then the only impact of the new construction is that it increases the value of the insured property. It is likely that your old title insurance has an insured amount that is less than the current property value, with improvements. In my view, I suspect this is fine, since it would have to be a catastrophic title claim (e.g., energy company has a pre-existing right to bulldoze your entire house without providing compensation) to exceed the land value of the house. That seems like very low risk, although not zero risk -- if it were me, I would not bother with title insurance on the improvement. But it depends on the land value, the value of the improvements, the current insured amount, and how much risk you're willing to take. | |||||
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| Posted: Thu Sep 22, 2011 12:11 pm?? ?Post subject: | | ||||||
This is one of those things that doesn't matter, unless and until it matters. The point of the insurance is to protect against an unknown/remote risk which, if it materializes, might be catastrophic. Title insurance is cheap compared to the value of what is being insured.
Why? Why is it that the lenders insist on title insurance? Why shouldn't the property owner also be fully covered?
As the builder you are not taking the risk of being wrong. Therefore it's fine with you if the property owner cuts costs by avoiding title insurance covering the new construction as well as the property itself. I'm sure there are many many places in the construction of a new home that a builder could cut corners to save money yet you wouldn't do that if it would create a less sound construction and hence more risk to the home owner. Would you? If not, why not, and why is that reasoning any different than getting title insurance which probably won't be needed? That is after all the nature of insurance. Hedging one's bets against a remote but catastrophic outcome. | |||||||
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| Posted: Thu Sep 22, 2011 12:14 pm?? ?Post subject: Re: Title Insurance on the land and new construction.... | | ||||||
Why aren't you allowed to use aluminum wiring anymore? Or asbestos insulation? Most of the time it won't matter. Yet all houses have to be constructed to code. | |||||||
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| Posted: Thu Sep 22, 2011 12:17 pm?? ?Post subject: | | ||
The problem is you don't know if the claim is going to be catastrophic going into it. If you knew you had a potentially catastrophic title problem from the outset, you would resolve it at the outset, or not buy the property if you couldn't resolve it. Also remember that the claim does not have to be a valid one for the property owner to benefit from the title insurance. Fraudulent title claims can be expensive to defend. | |||
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| Posted: Thu Sep 22, 2011 1:46 pm?? ?Post subject: | |
| Marco100
1) are you an attorney ? 2) do you sell title insurance ? 1210 | |
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| Posted: Thu Sep 22, 2011 5:23 pm?? ?Post subject: | | ||||
Yes it is, that's why you should always buy Owner's coverage when purchasing real estate.
Lenders are putting new money against a property and filing a lien that creates a mortgage, they have to make sure their lien is unencumbered. This is totally different from someone who buys a property and gets title insurance and decides later to make some improvements. Would you buy title insurance after having your house painted, doing a room addition, or adding a new roof? Allan | |||||
Source: http://www.bogleheads.org/forum/viewtopic.php?t=82768&start=0&mrr=1316726612
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