Greg: Welcome to the Louisville Real Estate Law podcast, offering an informative approach to the legal questions many consumers have when it comes time to deal with all aspects of real estate transactions. I’m Greg, your host, and today, as always, I’m at the offices of Horne Title for today’s interview. I’m joined by Steph Horne, the owner of Horne Title, who’s been a real estate and closing attorney in Louisville for over 20 years.
I’d like to talk to you today about title insurance and why you think it might be a good idea for home buyers. I guess maybe why not, but what the basics, what is title insurance?
Steph: Title insurance is something that you purchase when you buy a home or other real estate and you acquire title to property. What this does, it protects you; it protects your right to that property against claims that other people might bring.
Greg: All right, so it’s something that you buy along with the house, or when would someone buy title insurance? It’s separate from the house? It goes with the house?
Steph: At the closing, it is on your settlement statement. If you are purchasing a piece of property and getting a mortgage loan to buy the property, the lender would require you to purchase lender’s or mortgagee coverage for them. At that same time, you purchase owner’s title insurance which protects you. It’s just a one-time premium.
Greg: Okay, so it might show up twice. The bank feels it’s so important that they make you get one policy to cover their interest, but you’re saying it’s a good idea for the buyer to get their own policy for their own interest.
Steph: Yes. How it works is the lender will require the buyer to purchase a loan coverage, a loan policy that covers the amount of the loan. Just like any other insurance policy, it has the bank’s name on it, so whoever is protected, it has their name. Notice that it doesn’t have your name on it. That loan policy would cover the lender up to the loan amount, and so you would need to purchase your own policy so that you had a policy of title insurance with your name on it protecting you. It would protect you up to the contract price.
Greg: What does that actually mean? Let’s say I go ahead, I buy a house, I get both these policies we’re talking about. What is it protecting me from? What is my title? This is not the loan, right? If I forfeit or if I don’t pay my loan, this has nothing to do with paying the loan back; this is different.
Steph: No, what this is it protects you up to your purchase price, and it actually lasts as long as you have an interest in the property. What it does, it protects you against things such as someone else owning an interest in your title, so if somebody else owning your property, having not a clear title, defective recordings, unrecorded easements or agreements and fraudulent documents.
Greg: Do most people run into this or is it a case where if you do run into it, the cost is so catastrophic to you or the consequence is so catastrophic that you don’t want to be caught without the insurance?
Steph: Yes. Most people in Louisville and this region purchase title insurance. They purchase an owner’s policy, and the reason is, if you don’t purchase it, if it does happen where there is a title defect, it can be really expensive, even if you’re right. There is a situation that happened with a Kensington subdivision here in Louisville several years ago. It was a new subdivision and those folks who had purchased title insurance and owner’s policy, when the issue came up and their title to their property was challenged, what they did is they picked up the phone.
They were able to call the title company and that title company litigated the claim that was filed against all the owners of the subdivision. They took it through the litigation to resolution. It’s really important. You may be 100 percent right, but people nowadays, they are very litigious, is what they call it. They may sue you even if they’re not right.
Greg: Even if you are right, right?
Steph: Yeah, and then you’ve got to defend it. It’s just smart to purchase title insurance since it is a one-time premium.
Greg: I’m convinced; I bought title insurance, but I’m curious. What is the worst case situation? Let’s say I sign up and buy a house for $300,000 and I don’t buy my own personal title insurance. What’s the worst that can happen? This sounds awful, but I don’t even know what really could go wrong.
Steph: In Bowling Green, what happened a few years ago, somebody paid cash. They paid approximately $200,000 for a piece of property; they bought their house. Later, it turned out they were foreclosed on by somebody who held a lien against the prior owner of the property. They hadn’t run, …
Greg: Done a good title search.
Steph: … hadn’t discovered this lien.
Greg: Oh, my gosh.
Steph: They hadn’t discovered the lien, hadn’t purchased the title insurance. The bottom line is, the closing is only good as the attorney that does the closing, so if the closing attorney is deceased or no longer in business or a fly-by-night company, then there’s nobody, there’s no recourse. If they’re not there, there’s nobody to go back to. What happened is, the worst case scenario is that they lost their home.
It’s funny, Lincoln, obviously being in the birthplace of Lincoln where Lincoln grew up, Lincoln actually lost his home twice, his family farm, was because of title defects. That was way before title insurance developed, but that’s just a real historical example of somebody and the worst case scenario. They had to pick up and leave because they didn’t have good title, went to another piece of property, and the same thing happened where they lost their home; they didn’t have a good deed.
Greg: That’s funny. I remember hearing something about that in history class. I always thought it was more of a folk story than a real legal story. That’s based in fact, that that was from a title defect.
Steph: Correct. There was a title defect in the chain of title that Lincoln’s father never actually owned the property. Tom Lincoln went to court to prove his ownership rights. He was sued and he lost.
Greg: Oh, my gosh.
Steph: I know.
Greg: Maybe that’s why Lincoln became a lawyer later. Maybe he was so upset about those early years and what happened to his parents.
Steph: I know. I don’t think he became much of a land lawyer though …
Greg: No, because he …
Steph: … because he obviously went on to bigger and better things.
Greg: Well, let’s get into the nuts and bolts of it. If someone is coming to your place of business, they’re closing on a property, they want title insurance, a worthwhile investment, and when you’re buying a house, relatively speaking, it’s not very expensive.
Steph: No, it’s not, and it’s just a one-time premium, so it protects you as long as you own the home. It just really is important to make sure that you’ve purchased it, because if there is something that is undiscovered at the time of the closing, it can come up later and then you just pull out your policy and they would litigate or defend you if there was a claim against the title made. It’s very important, and it’s things that you might not think about.
Some of the things that it can protect against are fraud, forgery, missing heirs, something like that, something that the courtroom, if there’s a forgery of a mortgage at the courthouse, somebody filed a fake lien and then they tried to pursue it against you, that’s something that you need to … You can’t see. If we did a closing, it would come up, we would be paying and clearing it, but if you couldn’t see it because it was misindexed or misfiled by the clerk, it’s just that type of thing that it protects against.
Greg: Okay. I don’t want to take up all your time here. I really appreciate you sitting down, but you said that it protects you for the length or however long you own the house. What happens … and can this even happen … if I buy a house, no claims, I sell the house, and then later, someone makes a claim against, I guess, is they call the chain of title. Can I get dragged into that somehow even though …
Steph: It’s really wonderful. What happens is, if you are in the chain of title and there is an owner’s policy that you’ve purchased, you just have to pull out your policy and show that, “I have an insured title.” Then the title company that is handling this subsequent closing will be able to utilize that owner’s policy to provide affirmative coverage over something that is showing on the title that happened prior to your policy. Your policy covers things that happened in the past.
It is very, very important to have along the chain of title, everybody in the chain purchasing owner’s title, because they can always go back to that prior owner and the new title company can utilize that policy. Some defects cannot be fixed, and then a file would be made against the title insurance, a claim would be put in by a title insurance company against another title insurance company. As long as you had purchased title insurance, you would not be personally involved in the claim. You would be turning it over to the company.
Greg: And I can let the companies fight it out, I’m …
Greg: Okay. That makes much more sense now. I think I got it. Is there something else I need to know about title insurance or did we cover most of the basics there?
Steph: I think we covered it, Greg. I think it’s just really important to know that in the state of Kentucky, some folks will try to cut fees and make your figures look better by not quoting title insurance, and so it’s really important for you to see through that and make sure a reputable lender will quote owner’s title insurance and lender’s title insurance both, because they understand and recognize the importance of protecting your interest in your property for the long-term, not just to make a quick buck and get it closed, but to make sure that your asset, your number-one most expensive thing that you own, your house, to make sure that it is protected.
Greg: That sounds great. Thanks so much. I look forward to the next episode and we’ll see you next week.
Steph: Thank you, Greg.
Greg: Thank you for joining us in this episode of the Louisville Real Estate Law podcast. Please remember that this podcast does not constitute legal advice. If you have any questions or feel that you may need to speak with legal representation, please contact Steph Horne at Horne Title, located at 6510 Glenridge Park Place, Suite 1, right behind the old Austin’s restaurant on Brownsboro Road, Highway 42. You can also visit the website, www.hornetitle.com, that’s H-O-R-N-E-T-I-T-L-E.com or call the office at 502-409-5044. We appreciate your time and look forward to having you back for our next episode.