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Title Insurance and the All-Cash Deal
By Barbara Pronin
When you buy a house for cash – and there are buying opportunities available for those with enough cash on hand – you are able to bypass some of the requirements most lenders impose. Among them is title insurance, which some cash buyers view as an avoidable expense.
 
But savvy real estate professionals remind cash buyer clients that title insurance is an indemnity policy, designed to protect a buyer from unforeseen financial loss.
 
One Florida attorney represented a buyer who paid cash for a vacation home he purchased from a bank that had obtained it through a foreclosure proceeding. Since there was no lender involved, and no requirement for title insurance, the buyer opted not to buy it.
 
Months later, after the buyer had spent additional funds to remodel the home, he received a summons from the previous owner, who claimed he had not been notified of the foreclosure. Both the foreclosure and the subsequent sale were voided.  
 
A review of the docket indicated that a person with the same name as the previous owner had, in fact, been served, and had filed an affidavit with the court stating he was not the owner of the property. The wrong person had been served.
 
Had the buyer purchased title insurance, researchers would likely have discovered the error, and the buyer would have been protected.
 
In another instance, a California broker had a client who told her about a “great deal” he got on a Palos Verdes home. The sellers wanted out, and needed a fast close he said, and sold him the home, valued at over half a million dollars, for $100,000 cash. The sellers assured him they had only a small loan on the property, and the escrow officer, with no mandate to research title in the cash transaction, just had them sign the deed transferring the property to the new owner.
 
A year later, the buyers discovered there were IRS liens, a judgment, and another loan against the property. Having no recourse, they lost the property and the $100,000 they paid for it.
 
Was there poor judgment involved in these cases? Should the buyers have had an inkling that if something seems too good to be true it probably is?
 
Of course – and not every cash deal ends in disaster. But smart agents advise their all-cash buyers that the value of having title insurance protection far outweighs the minimal cost.
 
Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.

This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice.  You are encouraged to consult your legal, tax or investment professional for specific advice.  The material is meant for general illustration and/or informational purposes only.  Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. 


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