Whatís your most important investment in any property? The equity. To a great extent, the property itself is irrelevant. Itís the equity that house represents thatís important. After all, to you, the equity is your profit! And the only way to protect that equity is through title insurance.
Investors sometimes believe that just because we run a title exam before closing, then the equity in which theyíre investing is safe. Unfortunately, thatís simply not true. While a title exam will reveal glaring title problems such as missing owners, invalid legal descriptions, or multiple conveyances, there are a number of problems that a title search will never reveal Ė and these problems can be costly indeed to the investor.
Like what? Well, a title exam can never show whether a deed in the back chain was forged, or whether the person signing it was committing mortgage fraud. The exam canít show if a deed was signed by a minor, or someone who lacked legal capacity. It canít reveal mistakes made through the mis-indexing of deeds by the clerk Ė and any of these could potentially result in a total loss by the investor. After spending the time to find the right deal, incurring acquisition, rehab, carrying, and marketing costs; to lose the house because of a title problem is the last thing you want to have happen.
Admittedly, these types of risks are remote; but they are by no means insignificant. And remember: it only takes one complete loss to hurt your business. Imagine buying a house and funding significant rehab either out-of-pocket or with hard money. Imagine then finding out that someone had impersonated your seller at closing, that you didnít own the property you thought you had purchased, and you didnít have insurance to protect your investment. Thatís a disaster from which few investors would easily recover.
But there are lesser risks as well, not the least of which are matters filed during the recording gap. The recording gap is that period of time that the counties are behind in their recording. In some counties, the recording gap may be as short as a few days; in others, it may be as long as several months. Any lien filed during the gap will not be shown in the title exam and will attach to the property. Without title insurance to protect against matters filed in the gap, an investor can see the profit quickly disappear.
Just as you would never let your property go without hazard insurance, you should never let your title go without adequate insurance in place.
If you have any questions, or if we can do anything else for you, please let us know.