Sad Stories Make Good Lessons

Sad stories make good lessons. Don’t text and drive. Don’t share your passwords. And don’t spit in the wind. To those I’ll add this one: don’t buy real estate without title insurance.

A story in today’s paper tells the sad story: man buys beachfront condo at foreclosure sale; condo has two mortgages, not one; foreclosure was for second mortgage; buyer now has to pay first mortgage.

Here’s the lesson: get a title insurance commitment before you buy real estate. No matter who you buy it from: a neighbor, a friend, a family member, a Zillow ad, a real estate listing, or even on the courthouse steps in a foreclosure.

Here’s the reason: buying real estate is not like buying a car. Every car has a title certificate showing who owns it. But real estate is different: there is no title certificate for real estate. Instead, we have title insurance companies who research the chain of title to determine who owns it. Every single parcel of real estate in Florida is handled this way.

When the title company searches to determine who owns the real estate, they also search for mortgages. So, if there are two mortgages instead of just one, the title insurance company tells you that. But they don’t tell you that in a phone call or by email or text.

Title insurance companies give you what is a called a title insurance commitment. It reports the results of their title search by telling you who owns the real estate now and what mortgages and liens and things are against it. They cost anywhere from $50 to $2,000 depending on the real estate involved. The title commitment also tells you what they require to be done before they will insure the title.

That’s right. They will actually insure the title to the property. So if they missed something in their search, then their insurance should protect you from that error by paying you damages. For that, they charge a premium that is paid once at the closing, not annually, based on the purchase price. The seller usually pays that premium, but who pays it is actually negotiable.

Of course, if someone buys real estate at a foreclosure sale, the seller is not going to provide title insurance so you would have to get it yourself.

And you must have the title insurance commitment before you actually buy the property. If you get it afterwards, it’s too late to do anything about mortgages and other adverse things that appear on it. As the buyer in today’s sad story learned, the hard way.

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